Commodity Price Risk

Many businesses make their profit by using raw materials to make something that adds value.  Steel is a valuable commodity, but it is much more valuable when you make a car out of it.  When commodity prices rise, it is good for commodity producers like farmers, drillers, and miners, but it is not good for the end users of the commodity, such as bakers, refineries, and jewelers.  Some investors try to capitalize on the link between certain companies and commodity prices, such as investing in the energy sector when the price of crude oil is predicted to rise.  Such links can also provide a degree of protection from overall market declines when incorporated into a well-designed portfolio.

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