Rising commodity costs can have a significant impact on manufacturing companies, eroding their profit margins and reducing their competitiveness, ultimately leading to a loss of market share. When costs increase, companies may be forced to increase their prices at the risk of alienating customers and losing them to competitors. 

This is why it’s imperative for manufacturing firms to adopt strategies to mitigate the inevitable volatility in commodity prices. By taking steps to maintain commodity price stability, companies will be better able to protect their profit margins, retain existing customers, attract new ones and ensure their long-term sustainability. 

To counter the unpredictable dynamics of commodity prices, a platform called Hedgify equips businesses with the tools and intelligence to adopt a more proactive approach. By using its platform to create and execute customizable price protection strategies, businesses can not only secure their profit margins, but even gain a competitive edge over their competitors. 

The Unpredictable Nature of Commodity Prices

In order to sell their products at scale, manufacturing firms often close contracts with buyers that involve price locks that last months or even years into the future. Under this model, once the contracts are signed, there’s no way for manufacturers to increase their prices, leaving them vulnerable if the costs of key commodities increase. 

If procurement teams buy all the raw materials needed to fulfill these contracts as soon as the orders come in, the company loses the ability to take advantage of commodity price fluctuations to boost their overall profitability.

To counter this, many businesses include buffers into their pricing models to take into account the potential for rising commodity costs, but the extreme volatility of some commodity markets means that such buffers aren’t always enough to cover for it. As an alternative, some companies try to negotiate stable, long-term prices with suppliers, but this strategy is equally flawed, as it requires them to pay excessive premiums to secure such stability.  

In some industries, companies may enjoy the flexibility to make significant price adjustments, but doing so repeatedly will almost certainly alienate customers that demand more consistent pricing.  

Price volatility is caused by multiple factors, from economic and geopolitical turbulence to cyber threats in supply chains and natural disasters, making costs notoriously difficult to predict. As a result, the vast majority of businesses are extremely fearful of this unpredictability, with a recent study by KPMG finding that 71% of global companies identified raw material costs as their biggest threat to profitability. 

The unpredictable nature of commodity prices stems from the countless factors that can impact supply and demand across industries. A 2024 report from the U.S. Dairy Association reveals how smaller cow inventories and slower-than-expected growth in milk yields per cow prompted a substantial increase in the cost of cheese and butter products this year. Moreover, the recent wildfires caused by widespread drought in Brazil conspired to drive up global sugar prices by 13%. 

Most businesses have no way to predict such events, and until recently, they had limited options available to try and protect themselves. Besides purchasing their supplies upfront, the only real options for many organizations are raising their prices or purchasing inadequate and expensive insurance policies. 

Hedging Volatility With Price Protections

Hedgify has changed that dynamic with an innovative, artificial intelligence-powered platform that not only helps businesses to mitigate the risk of commodity price volatility, but transform it into a competitive advantage. 

At its core, Hedgify offers a platform for purchasing price protections for key supplies, enabling businesses to plan production and pricing with a much greater degree of confidence, and do it much further into the future.

Procurement managers can use Hedgify to lock in the prices of source materials many months before they need those products to be delivered to their factories. It works similarly to the futures market, enabling manufacturers to buy or sell a specific commodity at a predetermined price on a specific future date.

In this way, Hedgify can be used to negate the price volatility that has previously made long-term planning impossible, paving the way for companies to seize on favorable pricing conditions and grow their long-term profits.  

The platform provides options to purchase price protection for almost any kind of source material in industries ranging from manufacturing and agriculture to transportation and supply chains. It can also help to hedge against foreign exchange movements and other kinds of risks.

A Different Way to Hedge

A traditional strategy for hedging against price volatility is to purchase commodity insurance, which can offer some protections for companies by compensating them if costs increase excessively. It’s a complex strategy that involves regularly buying and renewing policies, as well as a careful audit of the terms and conditions that might impact on payouts. Companies must also consider the time it takes to process any claim against such a policy, before they can receive any compensation that’s due. 

Instead of insurance, many companies opt to try and manage their commodity price risks internally, but doing so requires significant expertise and a lot of time-consuming analysis of global market conditions that might lead to volatility. 

Some traditional financial institutions also offer hedging services, but these offerings tend to be optimized for large enterprises rather than mid-sized firms. As a final option, companies can purchase Commodity Trading and Risk Management (CTRM) solutions that require tight integration with their existing financial accounting systems. 

Hedgify differs from each of these solutions, delivering an accessible and proactive solution that enables companies to establish their commodity prices ahead of time, bringing greater certainty to their businesses. While insurance payouts will cover losses associated with price volatility, Hedgify’s model makes it possible to avoid them in the first place by ensuring companies won’t experience any sharp increase in commodity costs. Instead, companies can secure and stabilize their supply chain pricing to shield themselves from unfavorable price fluctuations. 

In addition, Hedgify strives to keep hedging simple and affordable, with its ability to handle multiple suppliers and markets at once, so any company can create a viable risk management strategy. There’s no need for complex setups either, thanks to its user–friendly interface that makes the platform immediately accessible to any business user. 

Greater Price Certainty

Hedgify gives companies a more effective way to mitigate commodity price volatility and gain a competitive advantage. With its sophisticated tools for analyzing commodity price variations, foreign exchange and interest rates, it provides a reliable hedge that enables companies to remain stable, competitive and prosperous over the longer-term. 

With Hedgify, companies can not only secure, but also stabilize their supply chain prices. They gain the ability to plan production and pricing accurately while shielding themselves from unfavorable fluctuations and capitalizing on more favorable price conditions.

As an added benefit, Hedgify’s tools go beyond simple price protections, providing companies with accurate, up-to-date briefs and forecasts for specific commodity markets, plus AI-powered tools to further refine their hedging strategies. 

A Secure Future With Predictable Profits

Profit margin protection is essential for companies looking to safeguard their bottom line and remain competitive in today’s business climate. By comprehensively evaluating pricing strategies, supply chain risks, external and internal threats and leveraging AI-powered analytics, Hedgify not only provides pricing guarantees but goes further, paving the way for manufacturing businesses to seize on favorable market conditions while embracing digital automation.   

With Hedgify, businesses can plan their production operations and pricing strategies with unprecedented accuracy, bolstering their resilience to market fluctuations and creating new opportunities for profit maximization. It allows businesses to face down market uncertainty with confidence their long-term profits are secured.