Hedging Strategies for Commodity Price Risk in Volatile Global Markets

Abstract

This study conducts a systematic literature review of hedging strategies for commodity price risk in increasingly volatile and integrated global markets. The evidence shows that overlapping shocks from health, geopolitical, policy, and climate factors amplify price swings in energy, metal, and agricultural commodities, making risk management a strategic necessity. Derivatives such as futures, options, and over the counter contracts remain the main tools for stabilizing cash flows and reducing earnings volatility, but their effectiveness is highly state dependent due to basis risk and changing market conditions. Dynamic, time varying hedge ratios and more sophisticated models that capture shifting correlations and volatilities are therefore needed to sustain hedge performance over time. The review also indicates that hedging is closely connected to firms’ financing, investment, and governance decisions, supporting higher capital expenditure, firm value, and lower distress risk when aligned with underlying exposures and supported by deep, transparent derivative markets and robust institutional frameworks.