Commodity Price Risk
Categories: Trading, Derivatives, Stocks
Everything you buy from a company is usually made out of raw materials or commodities. So when commodity prices rise and fall, it can make financial performance difficult for the companies that either produce or use these raw materials to make goods.
A good example of commodity price risk is how the rise of steel and aluminum prices will impact the cost of a new home, and the margins of the home builder. That uptick in those steel costs (driven by factors like demand, technology, regulations, or tariffs) and the related impact on margins...is what is called commodity price risk.
If you're paying attention, you’ll notice that commodity price risk is a very common excuse that companies offer when they fall short of quarterly revenue expectations, as very few people follow commodity prices on a day-to-day basis.
Companies do have the ability to hedge or lock in prices for raw materials ahead of times...both buyers and sellers of these raw materials. Which just means that they're not very good at predicting future raw material prices, like 99% of other human beings.
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Finance: What Are Commodities?74 Views
Finance allah shmoop What are commodities This is a comm
owed And this is my monnet ease And neither of
them have anything to do with commodities though if you
say them fast enough well you'll never mind A commodity
is something that is common like it's everywhere See the
com o there for the big hand Like gold is
a commodity it's everywhere oil is a commodity it's everywhere
seven hundred fourteen page paperback copy of moby dick is
a commodity and yes we can't resist clueless politicians are
a commodity as well Well a commodity is basically the
same thing no matter where and how you buy it
That copy of moby dick is the same copy whether
you get it at your local bookstore If a physical
book stores even exist anymore or on amazon the serial
killer of those aforementioned book stores So if something is
the same everywhere well what would be the opposite Well
how about a swim lesson from michael phelps You know
you can't buy that on amazon Not yet anyway Or
say you want to be the proud owner of a
three headed dog Well you might be able to find
one somewhere but it's going to cost you a whole
lot of kibble Or what if you were looking to
buy a blouse like one that was worn by j
edgar hoover Well those are pretty uncommon and or unique
commodities Well the basic idea is that most commodities can
be sold by lots of people so their profit margins
are generally low They may sell an extreme volume but
if you have thirty people competing to sell you that
same copy of moby dick don't don't you think the
last guy just desperate to get it off his shelves
will drop the price really low and you'll take it
Yeah unfortunately then you have to read that book That 00:01:41.357 --> [endTime] book really will be your way