Commodity price risk is the chance that commodity prices will change in a way that causes economic losses. Commodity price risk for buyers is due to increases in commodity prices; for sellers/producers it is often due to decreases in commodity prices.

Commodity Price definition:-
Commodity price risk is the financial risk on an entity’s financial performance/ profitability upon fluctuations in the prices of commodities that are out of the control of the entity since they are primarily driven by external market forces. Sharp fluctuations in commodity prices are creating significant business challenges that can affect production costs, product pricing, earnings and credit availability. This price volatility makes it imperative for an entity to manage the impact of commodity price fluctuations across its value chain to effectively manage its financial
performance and profitability.

How affect the stock market?
This is because while the production cost remains the same, revenues rise (due to high commodity prices), increasing the operating profit (revenue minus cost), which in turn pushes up the stock price.
However, the risks associated with commodity investments are substantial. Uncontrollable factors such as inflation, weather, political unrest, foreign events, new technologies, and even rumors can have devastating consequences to the price of a commodity.


What happened when commodity price rises?
The commodity markets are quoted in U.S. dollars so it may seem intuitive that when the dollar rises, commodity prices will decrease. Simply, a stronger U.S. dollar will impact inflation through commodity prices rather than consumer goods.