What companies use commodity options?

Question

For a class project a group of us need to do a presentation on a company that uses commodity options in their business using real date on that company. They must use at least two types of derivitives. Manufacturing or farming would be my top choice, but it is hard finding out what they are actually buying and selling (as far as the actual products). Any ideas for a resource?

Answer 1

Companies that supply and demand both use commodities in their businesses.

Airlines use options to hedge the price of fuel.

Farmers use options to ensure the price they'll get for their livestock.

Companies like tyson, Pilgrim's Pride, etc use commodities to hedge the price of fees like Corn.

Cattle farmers use wheat/corn.

Resellers and refiners use crude oil, heating oil, etc.

Those are just a few of the ones that I've seen.

You can go to the Chic Merc Exch site or the NY Merc Exchange for some info. You could also check out websites of big companies who often talk about their hedging of this or that.

Hope that helps!

Answer 2

Companies that explore for raw materials generally want prices high, so their risk would be lower prices. To hedge against that they would buy puts or sell calls on the commodity of interest. The former gives them the right to sell product at a certain level, so they are protected against falling prices. Manutacturing companies like low prices so conversely they would buy calls or sell puts. Most companies of scale can use commodity futures to enhance their profits and limit exposure.

Answer 3

Look into Gold Mining. In business school, I did a case on American Barrick, and they had hedged their future production with options. That was years ago.

Actually I just read another example, in the current issue of Fortune magazine. There's an article on corn farmer and it mentions prices and a farmer who sold his crop using a forward contract to lock in the current high prices. There you go. It should still be on the newstand. Bloomberg is on the cover.