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

Actually McDonald’s is the world’s largest buyer of potato futures.

For simplicity I’ll skip a lot of details. Basically the futures we are talking about basically say something like “On Oct 16, 2023, 2000 pounds of potatoes will be delivered to the owner of this contract”. McDonalds buys a lot of those contracts, and they will buy them sometimes years ahead of time.

This allows McDonald’s to know the exact price they will pay for potatoes for the next few years.

The result of this is that McDonald’s buys very little on demand, when prices change quickly.

Big buyers like McDonald’s use this for everything, even salt is dealt with like this.