[{"data":1,"prerenderedAt":346},["ShallowReactive",2],{"blog-\u002Fblog\u002Fcommodity-price-risk":3,"blog-surround-\u002Fblog\u002Fcommodity-price-risk":327,"blog-related-\u002Fblog\u002Fcommodity-price-risk":336},{"id":4,"title":5,"audience":6,"body":10,"cluster":291,"date":292,"description":293,"draft":294,"extension":295,"factCheckedAt":296,"faq":297,"featured":294,"language":296,"meta":307,"navigation":308,"order":309,"originalAsset":296,"path":310,"pillar":311,"primaryKeyword":312,"relatedProject":296,"releaseScope":296,"reviewCycle":313,"reviewStatus":314,"reviewedBy":315,"searchIntent":316,"seo":317,"sources":296,"stem":318,"tags":319,"type":325,"updated":292,"__hash__":326},"blog\u002Fblog\u002Fcommodity-price-risk.md","Commodity Price Risk in Corporate Treasury",[7,8,9],"treasurer","treasury-analyst","procurement-lead",{"type":11,"value":12,"toc":281},"minimark",[13,54,59,62,78,81,85,88,116,126,130,137,157,160,164,190,194,210,214,250,256,259],[14,15,16,20,21,26,27,31,32,36,37,41,42,45,46,49,50,53],"p",{},[17,18,19],"strong",{},"Commodity price risk is the risk that moves in the prices of commodities a company buys or sells hurt its finances — jet fuel for an airline, metals for a manufacturer, grain for a food company, crude for a producer."," It's a market risk, like ",[22,23,25],"a",{"href":24},"\u002Fblog\u002Ffx-risk-transaction-translation-economic-exposure","FX"," and ",[22,28,30],{"href":29},"\u002Fblog\u002Finterest-rate-risk-in-corporate-treasury","interest rate"," risk, and it's managed with the same logic — ",[22,33,35],{"href":34},"\u002Fblog\u002Fwhat-is-treasury-risk-management","identify, measure, manage, monitor"," — but it has its own quirks: commodity prices are often ",[38,39,40],"em",{},"more volatile",", exposure is frequently ",[38,43,44],{},"indirect",", and hedging carries ",[38,47,48],{},"basis risk"," that makes it imperfect. It's also the market risk most often owned ",[38,51,52],{},"jointly"," with procurement and the commercial side, rather than by treasury alone.",[55,56,58],"h2",{"id":57},"what-it-is","What it is",[14,60,61],{},"Any company whose costs or revenues depend materially on a commodity price it doesn't control has commodity price risk. Two directions:",[63,64,65,72],"ul",{},[66,67,68,71],"li",{},[17,69,70],{},"On the buy side"," — input costs. A manufacturer's metals, an airline's fuel, a food producer's crops. When the commodity rises, margins compress.",[66,73,74,77],{},[17,75,76],{},"On the sell side"," — output prices. A miner, farmer or oil producer whose revenue rises and falls with the price of what it sells.",[14,79,80],{},"Either way, an uncontrolled price move flows straight to the bottom line.",[55,82,84],{"id":83},"how-it-differs-from-fx-and-rates","How it differs from FX and rates",[14,86,87],{},"Commodity risk shares the market-risk framework but has features FX and rates don't:",[63,89,90,96,106],{},[66,91,92,95],{},[17,93,94],{},"Higher volatility."," Commodity prices can swing far more sharply than currencies or rates.",[66,97,98,101,102,105],{},[17,99,100],{},"Indirect exposure."," You may be exposed to a commodity you don't buy ",[38,103,104],{},"directly"," — its cost is embedded in a supplier's price. That hidden exposure is easy to miss.",[66,107,108,111,112,115],{},[17,109,110],{},"Basis risk."," The traded hedging instrument rarely matches your ",[38,113,114],{},"exact"," commodity, grade, location and timing — so hedges are imperfect in a specific way (more below).",[117,118,120],"callout",{"type":119},"tip",[14,121,122,123,125],{},"The most-missed commodity exposure is the ",[38,124,44],{}," one. You may not buy copper — but if your supplier does, and their price moves with it, you're exposed to copper through them. Mapping exposure means looking through your supply chain, not just at what you purchase directly.",[55,127,129],{"id":128},"managing-it-natural-first","Managing it: natural first",[14,131,132,133,136],{},"As with ",[22,134,25],{"href":135},"\u002Fblog\u002Fnatural-hedging-vs-financial-hedging",", reduce exposure structurally before hedging financially:",[63,138,139,145,151],{},[66,140,141,144],{},[17,142,143],{},"Pass-through pricing"," — moving the commodity cost to customers via price, so a rise in input cost is recovered in revenue.",[66,146,147,150],{},[17,148,149],{},"Fixed-price or indexed supplier contracts"," — locking input costs, or tying them to a known index.",[66,152,153,156],{},[17,154,155],{},"Matching"," — aligning the timing and currency of purchases and sales so exposures partly offset.",[14,158,159],{},"Where the business can pass the cost on or contract it away, that's usually cheaper and simpler than a financial hedge.",[55,161,163],{"id":162},"financial-hedging-and-basis-risk","Financial hedging — and basis risk",[14,165,166,167,170,171,175,176,178,179,182,183,186,187,189],{},"For the residual, companies use ",[17,168,169],{},"commodity derivatives"," — futures, forwards, swaps and options — to offset price exposure, exactly as with ",[22,172,174],{"href":173},"\u002Fblog\u002Ffx-hedging-instruments-forwards-options-swaps","FX instruments",". But commodity hedging carries ",[17,177,48],{}," more acutely: the liquid traded contract (a benchmark grade, at a benchmark location, for a standard date) may differ from ",[38,180,181],{},"your"," actual commodity, quality, delivery point and timing. So the hedge offsets the ",[38,184,185],{},"benchmark"," move but not perfectly ",[38,188,181],{}," move — leaving a residual \"basis\" you have to understand and accept. A commodity hedge is rarely the clean offset an FX forward can be.",[55,191,193],{"id":192},"whose-risk-is-it","Whose risk is it?",[14,195,196,197,200,201,204,205,209],{},"Unlike FX and rates — usually treasury's domain — commodity risk is often ",[17,198,199],{},"shared",". Procurement owns supplier contracts, the commercial side owns pricing, and treasury owns the financial hedging and the framework. Managing it well means these functions working ",[38,202,203],{},"together",", with a clear ",[22,206,208],{"href":207},"\u002Fblog\u002Ftreasury-risk-management-policy","policy"," on who does what. Commodity risk falls through the cracks precisely when everyone assumes someone else owns it.",[55,211,213],{"id":212},"what-usually-goes-wrong","What usually goes wrong",[63,215,216,222,228,238,244],{},[66,217,218,221],{},[17,219,220],{},"Ignoring indirect exposure."," Hedging only directly-purchased commodities and missing the exposure embedded in suppliers' prices.",[66,223,224,227],{},[17,225,226],{},"Underestimating basis risk."," Treating a benchmark hedge as a perfect offset, then being surprised by the residual basis.",[66,229,230,233,234,237],{},[17,231,232],{},"Over-hedging."," Hedging forecast volumes so aggressively that if they don't materialize, the hedge becomes a ",[22,235,236],{"href":173},"speculative"," position on the commodity.",[66,239,240,243],{},[17,241,242],{},"No policy \u002F no clear owner."," Commodity risk left between procurement, commercial and treasury, so it's managed by no one.",[66,245,246,249],{},[17,247,248],{},"Forgetting natural options."," Reaching for derivatives when pass-through pricing or a supplier contract would have handled it.",[14,251,252,253,255],{},"Map the exposure including the indirect part, reduce it naturally where you can, hedge the residual with eyes open about basis risk, and give it a clear cross-functional owner under policy — and commodity price risk becomes a managed exposure rather than the volatile line that quietly wrecks a margin. It's the market risk that most needs treasury and the business to manage it ",[38,254,203],{},".",[257,258],"hr",{},[14,260,261],{},[38,262,263,264,268,269,26,272,275,276,280],{},"Part of the ",[22,265,267],{"href":266},"\u002Ftopics\u002Ftreasury-risk-management","Treasury Risk Management guide",". See also ",[22,270,271],{"href":135},"natural vs financial hedging",[22,273,274],{"href":34},"what is treasury risk management",". The ",[22,277,279],{"href":278},"\u002Fnewsletter","newsletter"," sends one finance-systems pattern, product decision or build lesson every two weeks.",{"title":282,"searchDepth":283,"depth":283,"links":284},"",2,[285,286,287,288,289,290],{"id":57,"depth":283,"text":58},{"id":83,"depth":283,"text":84},{"id":128,"depth":283,"text":129},{"id":162,"depth":283,"text":163},{"id":192,"depth":283,"text":193},{"id":212,"depth":283,"text":213},"commodity","2026-07-24","Commodity price risk: when the prices of what a company buys or sells hurt its finances. How it differs from FX and interest-rate risk, and how it's managed.",false,"md",null,[298,301,304],{"question":299,"answer":300},"What is commodity price risk?","Commodity price risk is the risk that changes in the prices of commodities a company buys or sells will hurt its finances. A manufacturer is exposed to the cost of its raw materials, an airline to jet fuel, a food company to agricultural inputs, and a producer to the selling price of what it extracts or grows. It's a form of market risk, like FX and interest rate risk, but it attaches to physical inputs and outputs rather than currencies or rates, and it's often more volatile.",{"question":302,"answer":303},"How is commodity risk different from FX or interest rate risk?","Commodity risk attaches to physical goods a company buys or sells, and it has some features that FX and rate risk don't. Commodity prices are often more volatile; exposure can be indirect (a supplier's costs, embedded in the price you pay, not a commodity you buy directly); and hedging carries basis risk — the traded instrument may not exactly match the specific grade, location or timing of your actual commodity, so the hedge is imperfect. It's also frequently owned jointly with procurement and the commercial side, not treasury alone.",{"question":305,"answer":306},"How do companies manage commodity price risk?","First by identifying the exposure (including indirect exposure embedded in suppliers' prices), then managing it through natural means where possible — pass-through pricing that moves the cost to customers, fixed-price or indexed supplier contracts, and matching purchases to sales — and through financial hedging using commodity futures, forwards, swaps or options for the residual. As with other risks, it should be governed by policy, sized to a real exposure, and mindful of basis risk, since commodity hedges rarely offset perfectly.",{},true,5.5,"\u002Fblog\u002Fcommodity-price-risk","treasury-risk-management","commodity price risk","annual","reviewed","Tan Gravam","informational",{"title":5,"description":293},"blog\u002Fcommodity-price-risk",[320,321,322,323,324],"treasury","risk-management","commodity-risk","hedging","basis-risk","text","fMhRIYwXkhemOXurKnRm6GWz1cd_TZishNgvuNsqi4o",[328,332],{"title":329,"path":330,"stem":331,"type":325,"language":296,"draft":294,"children":-1},"Change Management for Finance System Rollouts","\u002Fblog\u002Fchange-management-for-finance-system-rollouts","blog\u002Fchange-management-for-finance-system-rollouts",{"title":333,"path":334,"stem":335,"type":325,"language":296,"draft":294,"children":-1},"Configuration vs Customization in Finance Systems","\u002Fblog\u002Fconfiguration-vs-customization-finance-systems","blog\u002Fconfiguration-vs-customization-finance-systems",[337,340,343],{"path":34,"title":338,"description":339},"What Is Treasury Risk Management?","How a company identifies, measures and manages its financial risks — liquidity, FX, interest rate, counterparty — keeping risk within appetite, not at zero.",{"path":24,"title":341,"description":342},"FX Risk: Transaction, Translation and Economic Exposure","FX risk comes in three types — transaction, translation and economic exposure. Why classifying them correctly is where FX management actually starts.",{"path":135,"title":344,"description":345},"Natural Hedging vs Financial Hedging","Natural hedging offsets exposures by structuring the business; financial hedging uses instruments for what's left. Why you reduce naturally first, then hedge.",1785182339101]