Commodity risk is the risk that changes in commodity prices may result in losses for a business. Commodity prices can be highly volatile and can fluctuate quickly, and it is possible for prices to experience sustained shifts over a longer period of time, known as a commodities super cycle. Many industries rely on commodities as a key input and are therefore highly sensitive to changes in commodity prices. There are several types of commodity risk that businesses may face, including:
- Changes in oil prices: If an organization relies on oil as a key commodity, changes in oil prices can impact its profitability.
- Changes in agricultural commodity prices: If an organization relies on agricultural commodities, such as wheat or corn, changes in commodity prices can impact its profitability.
- Changes in metal prices: If an organization relies on metals, such as steel or aluminum, changes in metal prices can impact its profitability.
- Changes in energy commodity prices: If an organization relies on energy commodities, such as natural gas or coal, changes in commodity prices can impact its profitability.
- Changes in commodity supply: If there is a disruption to the supply of a key commodity, such as a natural disaster or geopolitical event, it can impact an organization’s profitability.
