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Hello, my name
is Michael McDonald.
This is a business case study
developed
for Henry Stewart Talks.
Today, we're gonna
be talking about
Hedging in Commodities Markets:
Continental Resources.
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Commodities markets are focused
on commodities
as the name implies.
Commodities are
non-manufactured primary goods
and they're used by businesses
to produce finished
goods for consumers.
So, for example, a food,
say a breakfast cereal,
is not a commodity.
Instead, commodities like wheat
are used to make
that breakfast cereal.
Common examples of commodities
include crude oil, soy beans,
timber, gold, corn, live cattle,
wheat, sugar, et cetera.
There's about 50
different commodities
traded around the world.
These commodities are traded
between different parties
through markets
just like stocks and bonds.
So people are there
exchanging timber,
soy beans, et cetera.
But the commodities themselves
are not physically present
when they're being traded.
For example, if you had to hand
a barrel of oil to someone else
that had just
bought it from you,
that would be
pretty difficult, right?
And that person will have
to physically move the oil
and cart it off somewhere,
it just wouldn't be practical.
Barrels of oil are big,
they weigh a lot,
they're kind of bulky,
if you're trying to trade
hundreds of barrels
of oil per day,
you'd be really exhausted
by the end of the day
from carting all those
barrels of oil around, right?
So commodities are
not physically present
when they're traded.
Instead, there's representations
of those commodities.
Originally,
it was pieces of paper,
today, it's just
electronic indications
that one party or another
is owed those commodities.
So, sellers of commodities
are generally promising
to deliver commodities
to the buyers
to a specific location
in the future,
a certain amount
of time in the future.
