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Consumer giants ramp up commodity hedging to prepare for inflation in 2023

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Top US consumer companies increased commodity hedges to $16bn, highest in six years. 

by Anmol Karwal

Published: January 17th 2023

The profitability of global consumer goods companies is tightly linked to raw material costs and after a sharp slump in commodity prices since Russia’s war in Ukraine in 2022, raw materials consumed by US consumer firms including PepsiCo, Kraft Heinz, Hershey, Constellation brands and Conagra are making a swift comeback. In response, treasurers have armed themselves with commodity derivatives of a notional value of $161bn as of the third quarter of 2022, highest in the last six years.

Consider the US-based food and beverage multinational, Mondelez which consumes cocoa, dairy, wheat, sugar and oils to manufacture its snack food products, including biscuits, chocolate, gum and candy. After a tumble in prices during the first quarter of last year, these commodities are making a resurgence with many currently trading at higher prices than a year ago.

“From a cost perspective, we’ve seen some commodities showing signs of pulling back but we still expect significant inflation in 2023” said Luca Zaramella, EVP & CFO at Mondelez during the Q3 earnings call.

Subsequently, this has resulted in 5.3 basis points margin degradation for the company in the third quarter as gross margin reduced to 33.65% from 39.32% a year ago.

While the company is actively engaged in passing over higher input costs via pricing, it has aggressively expanded its portfolio of commodity derivatives to $10.45 billion in the third quarter of 2022, as compared to $9.6 billion at the start of 2022.

“While preparing for 2023 we continue to take appropriate action to hedge our commodity costs with greater flexibility.” Zaramella further said.

Mondelez’s key competitor, Hershey also followed suit as it increased its commodity derivatives by a staggering 116% to a notional value of $679 million in the third quarter as compared to only $313.2 million at the start of the year.

This has resulted in its hedge ratio, as calculated by dividing the notional value of commodity derivatives to annualised cost of goods sold (COGS), to increase by 300 basis points to 11.54% in the third quarter.

“We still have some pressure in commodities where we don't have complete hedging coverage..with our hedging and longer term contracts, I think, we do have a pretty good perspective on our cost expectations today” said Steve Voskuil, Senior Vice President and CFO at Hershey.


Management at the Michigan-based food manufacturing company Kellogg's expect the impact of commodity inflation on its financials to increase from high-teens in the first half of 2022 to more than 20% for the full year.

“We need to prepare for the same type of inflation, and this is double digit inflation on top of the inflation we've seen this year. So it's a pretty significant macroeconomic event.” said Steve Cahillane, CEO at Kellogg’s.

The company held $362 million of commodity derivatives as of the third quarter of 2022.

Meanwhile, the producer and marketer of beer, wine, and spirits, Constellation Brands follows a layered hedging programme wherein the treasury team keeps on adding commodity hedges over time. While it helps the company achieve a smoother hedge rate, it also exposes the company to new prices as the older hedges continue to roll off.

The company held $341 million of commodity derivatives at the end of the third quarter of 2022, sufficient to cover 7% of its annualised COGS.

“While we're nicely hedged, they [hedges] won't be at the favourable rates, as they were in the first half of the year” Garth Hankinson, CFO at Constellation brands told investors during the Q3 earnings call.

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Inflation is running at a 40-year high, interest rates are soaring and recession is looming amid ongoing supply-chain disruption and rocketing energy and commodity prices. For treasurers, this means an urgent to-do list has emerged.

With treasurers facing a new set of challenges due to global economic uncertainty, it’s a critical time to explore the latest strategies and solutions with peers. Learn more about what treasurers at global companies are doing to tackle inflation as well as a plethora of other macroeconomic headwinds in 2023 at the EuroFinance Global Treasury Americas West Coast conference in San Francisco In March 2023.