Currency and Commodity Hedging for Middle Markets

Key Takeaways

• Volatility is the new normal. Middle market companies face persistent swings in currencies, commodities and interest rates, making proactive hedging strategies essential for protecting margins and reducing risk.
• Fuel and commodity hedging remains critical. Even with stabilized fuel prices, sudden spikes can strain budgets. Customized hedge solutions help businesses manage exposure to oil, metals and grains over multi-year horizons.
• Forward contracts offer flexibility. Compared to futures, forward contracts provide tailored terms and timing, making them well-suited for businesses with irregular transaction schedules or specific currency needs.
• Long-term planning and alignment matter. Companies increasingly hedge three to five years forward to mitigate shocks from market volatility and climate risks. Success requires cross-departmental alignment and regular reviews.

Market volatility continues to reshape risk strategies

More than five years of cross‑current volatility in currencies, commodities and interest rates has middle market companies thinking longer and acting faster about hedging risk. Markets moved hard in 2025: the dollar sold off roughly 10% in the first half then settled into a tighter range, reminding treasurers that timing and tenor matter.

"We’ve seen all kinds of things happen. What we’ve mainly seen is a real push to look at longer‑dated hedges versus short term,” said Michael Orefice, managing director for Foreign Currency and Commodity Sales at Fifth Third Bank. “Clients want to help their business not just today but into the future.”

Middle market currency: the strong dollar

Dollar volatility underscores that urgency. The U.S. Dollar Index ended October 2025 near the high 90s. That’s well below late‑2024 highs, yet still elevated versus mid‑year lows. Such moves can reshape margins for exporters and importers, making currency risk one of the biggest catalysts for change.

When the dollar's strength combines with bouncy commodity prices and rising borrowing costs, business viability could be on the line. The trick is to manage that exposure strategically as well as cost-effectively.

For a company that sells abroad, or conversely, imports equipment or components, that’s potentially a huge bottom-line impact. In Q3 2025, Coca‑Cola’s comparable EPS rose 6% yet FX shaved six points off that growth, according to the company’s Q3 2025 release. Some firms that import components and sell domestically may see a tailwind when the dollar is firm, while exporters can face headwinds when it strengthens. That’s why many treasurers increased hedging programs in early 2025 as the dollar surged.

For middle market firms that are often focused on sales and customer retention rather than currency risk, navigating these dynamics can feel like uncertain territory. Increasingly, corporate treasurers and CFOs are learning about hedging strategies as a way to mitigate inherent risk rather than engage in speculation.

Hedging oil prices

Fuel costs may have stabilized compared to the wild swings of prior years, but volatility hasn’t disappeared. For middle market businesses, small moves matter. The EIA’s weekly Gasoline and Diesel Fuel Update show that U.S. on‑highway diesel averaged about $3.66 per gallon while fuel price volatility eased.

Looking ahead, the EIA’s outlook expects gasoline to average near $3.00 in 2026 with diesel around $3.50, driven by softer crude. Global crude markets echoed that trend with a sharp spring 2025 selloff followed by months of choppy stabilization.

For companies with heavy fuel exposure, a sudden spike can still hit budgets hard. That’s why the logic of hedging remains unchanged: cap exposure and reduced budget variance.

Orefice cited the example of a mid-sized building services company. "They’ve got $3 million to $5 million of annual expense for fuel. This was a business that hadn’t ever hedged before," he said. "Instituting a hedge program enabled the company to protect against rising fuel costs. Had they not executed on their hedge program, they would have spent an additional $3.5 million on fuel over an 18-month period."

One form of hedging is the purchase of a futures contract, which is an agreement where the buyer of the futures contract locks in a price where they can purchase an agreed-to volume amount in the future. For a manufacturer that knows it will need a certain amount of a raw material input at a fixed time and wants that expense effectively to be fixed, a futures contract can be purchased.

A different approach can be a prudent alternative for middle market executives who must keep a broader focus. Futures contracts aren’t the only tool available for managing price risk, and they may not be best suited for what a company needs. Hedge products available through financial counterparties can provide much more customized solutions to managing commodities and foreign exchange price risk. That’s why understanding the tools, futures and forwards, is critical for building a resilient hedge strategy.

How do futures and forward contracts compare?

In addition to a futures contract, for example, companies may opt for a forward. With a forward contract, the terms are set at the time of agreement, and the price does not fluctuate with the market. It also establishes when the asset will be delivered.

Whereas futures contracts are often used by speculators as well as for hedging, and are traded on public exchanges, a forward contract is a customized agreement between parties who are obliged to make good on the pact at the time specified. A supplier’s market price, or a currency, may rise or fall, but the "forward" ensures that the agreed-to terms will still apply. For both, the risk is contained.

Sometimes the hard duration of such an agreement is too inflexible to suit a business’s needs. If a company has a regular European customer, for example, but on an irregular transaction schedule, a "window forward" can take currency risk out of the equation.

"This type of forward gives businesses the opportunity to deliver or to receive a currency within a certain date range at the same price," Orefice said. "If it does a one-month forward to receive euros at $1.10, it doesn’t matter if it’s delivered on day one or day 30, the client gets $1.10." He added that a key advantage is that with window forwards, businesses can move dates. "They can be very customized to the client’s needs in terms of both prices and duration."

Easing the hedge

Dollar volatility is also changing hedge percentages. "What we’re starting to see is businesses that were doing 50% to 75% of their hedging in one year and leaving 25% open, are now moving a little bit back," Orefice said. "Their percentages have reduced in order to take advantage of the dollar move. We call that layering in hedges."

For example, middle market businesses that last year would have hedged against three quarters of the value of their European currency exposure, have reduced their hedging program to around 50%. They are trying to time the market instead rather than taking advantage of the strong dollar.

"On the other side, an exporter facing losses from a higher dollar, for example, needs to hedge right away," Orefice said.

Why is hedging commodities so important?

Protecting against currency risk is just one of the available types of hedges companies can use to improve their bottom line. Another concern for manufacturers is commodity price risk.

Bloomberg’s commodity index look‑back shows that in 2025, precious metals surged and industrial metals rose. Energy and grains lagged. Copper hit record territory mid‑year, supported by supply tightness and strong demand from electrification.

Grains saw ample supply and softer prices. USDA’s 2025/26 outlook projected lower season‑average prices for corn and wheat on higher stocks‑to‑use. FAO also reported record global cereal production and rising stocks in late 2025.

Protecting over the long term

With dizzying swings in commodity prices becoming the norm, businesses are increasingly turning to commodity price risk management to help protect against price movements three to five years forward.

Volatility is now a baseline, and decision time frames are shorter. Many teams moved faster in 2025 to avoid unanticipated losses. And today, businesses are protecting commodity inputs three to five years forward. That discipline reduces shock risk when markets swing or when climate conditions bite.

“Drought conditions are affecting agricultural prices across most of the U.S. and need to be considered as part of a hedge program," Orefice said. This is similar to supply chain and production issues affecting metals markets due to global events. These are ongoing market conditions for which the risks need to be managed.

Supply chain disturbances can always vary by region, but the lesson sticks. Choose instruments and durations that match your exposure, then review quarterly. And it’s important that all divisions within an enterprise be aligned on a hedge program’s benefits and costs. What might suit the procurement teams could have the accounting office later seeing red. "If the CFO knows what a hedge does, but all of a sudden the hedge turns negative and the business has hedge liabilities, their accounting team needs to know that," Orefice said.

Education in turbulent times can make a real difference to the bottom line. Middle market businesses should find a trusted advisor to build a hedge program that protects against today’s volatility. Fifth Third can provide scenarios and analysis for currencies, interest rates and commodities.

Learn more about financial risk management and contact a Fifth Third relationship manager to build a strategy for your business.