With economic uncertainty on the rise, U.S. companies across sectors have been actively utilizing futures contracts to hedge risks. By agreeing to buy or sell an asset at a predetermined future date and price, futures allow firms to lock in costs and protect revenues. From airlines hedging fuel prices to manufacturers using metals futures to technology firms dabbling in bitcoin futures, examples abound of corporations tapping these derivatives to navigate volatility.

In the airline industry, futures contracts on jet fuel have long been a key tool to smooth earnings. Fuel represents one of the largest input costs for carriers, so significant price swings can cripple profitability. Back in 2008, a number of airlines went bankrupt when oil prices spiked above $140 per barrel. Since then, airlines have stepped up fuel hedging programs. For instance, Southwest Airlines routinely hedges up to 85% of its future fuel consumption, having locked in prices on approximately 75% of its expected fuel needs for 2023. Rival Delta Air Lines has also gotten aggressive, with over 50% of its fuel costs hedged this year. The carriers use futures traded on the New York Mercantile Exchange to lock in fuel prices in advance, protecting margins from oil volatility.

Manufacturers with exposure to metals have also relied on futures contracts amid commodity price turbulence. Home appliance maker Whirlpool uses copper and steel futures to hedge costs with contracts bought on the London Metal Exchange and CME Group. With copper and steel prices seesawing over the past year, these futures have helped Whirlpool maintain steadier margins. Food company TreeHouse Foods similarly utilizes corn, wheat and soybean meal futures to reduce input cost uncertainty. Agricultural commodities have faced extreme price swings recently due to weather disruptions and the Ukraine conflict, making futures an essential cost control tool.

Besides commodities, some firms use currency futures to reduce foreign exchange risk. Multinational automaker Ford has significant exposure to exchange rate fluctuations when converting foreign revenue and costs. To smooth volatility, Ford executes currency futures including euro, British pound and Japanese yen contracts based on expected international cash flows. Tech giant Apple also partially hedges its foreign exchange risk using currency futures and options. With over 40% of Apple’s sales coming from Europe, exchange rate hedging helps mitigate currency headwinds. Corporate transactions can also be hedged using futures. When Microsoft acquired Activision Blizzard for $68.7 billion last January, the company likely used Treasury futures to lock in interest rates used to finance the deal.

In addition to traditional commodities and currencies, cryptocurrency futures have emerged as a new tool for risk management. MicroStrategy, a business intelligence firm, began buying bitcoin as a hedge against fiat currency debasement. But to reduce the volatility of holding crypto outright, MicroStrategy uses bitcoin futures to maintain exposure while capping risk. Movie theater chain AMC Entertainment recently adopted a similar strategy after investing in bitcoin, ether and other cryptocurrencies. AMC now uses futures and options to avoid the full brunt of crypto price swings. If the crypto winter stretches on, more firms holding tokens on their balance sheets may turn to futures and options to limit downside.

Of course, hedging with derivatives comes with its own risks. Airlines have occasionally been burned by futures bets that went the wrong way. Over-hedging can also lead to opportunity costs when prices move favorably. But despite drawbacks, futures remain attractive for mitigating volatility.

“Futures have been an effective tool to take out some of the uncertainty around our largest variable cost – fuel,” said Southwest Airlines CFO Tammy Romo. “It’s an area ripe for hedging.”

With so much macro uncertainty today, futures and options will likely continue growing in appeal across sectors. From commodities and currencies to crypto and equity indexes, these instruments allow firms to peer into the future and stabilize risk. While hedging strategies will vary, expect more corporations to actively fine tune their futures positions as they navigate mounting volatility ahead.

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