how huge food companies like Cargill and Mcdonald’s, etc. protect themselves from extreme price changes.

Question

how huge food companies like Cargill and Mcdonald’s, etc. protect themselves from extreme price changes.

In: 858

Answer 1

They hedge. Say they buy corn from a farmer for delivery in September. When they ink this deal they simultaneously sell a “futures” contract on a commodities exchange. This locks in their profit. All kinds of nuance, but in general this is how they prevent price shocks from killing them.