how huge food companies like Cargill and Mcdonald’s, etc. protect themselves from extreme price changes.
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They locking in prices with futures contracts on ingredients, are buying millions of dollars worth at a time to lock in best pricing. Also, the raw material cost relative to sale price is pretty minor. An order of Fries that sells for $3 may be 20 cents of potatoes, so even a 20 or 50% fluctuation in price of potatoes means relatively little to overall cost of item (rest of the price is transportation, processing, marketing, store overhead like rent and employees, profits). Companies also operate on cost-plus production costs, eg. McDonald’s pays their processors, production companies a set rate for their service on top of the cost of the raw material, eg. $10 per 1,000 hamburger patties on top of the cost of the beef used to produce them, so even if commodity prices fluctuate, the production costs on top are more stable.
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