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I think the difference is that by the time an airline is buying fuel, they have already sold the tickets at a certain price. So hedging makes sense. That’s not

I think the difference is that by the time an airline is buying fuel, they have already sold the tickets at a certain price. So hedging makes sense. That’s not the case with Walmart for produce - if tomatoes are more expensive to buy they can just sell them for more. The only things for which it makes sense are those that aren’t sold back, eg the fuel for their fleet of trucks etc

refurb 7y ago
Grocery prices are highly elastic. Yes, if gas prices doubled, Walmart could increase the price of their products, but consumers would likely buy a lot less, and Walmart sales would suffer. Walmart’s focus is on “low, everyday prices”, and future can help maintain those.
- ikeboy 7y ago
  There is absolutely no more reason to keep prices low if you've made a profit independently on futures than if you haven't. Your marginal cost goes up in both cases. If you're optimising profits, you should make the same decision in both cases regardless of if you bought futures.
  - refurb 7y ago
    Your marginal costs don't go up in both cases. If you have futures to buy diesel at $2.50/gal and the diesel price skyrockets to $4.00/gal, you can keep your prices the same. If you didn't have futures you couldn't without taking a loss.
    - ikeboy 7y ago
      This is incorrect. If you have futures, your marginal cost is still $4, since now you're using an additional gallon instead of selling it at market price at $4.
      - refurb 7y ago
        That's an opportunity cost, not an actual accounting cost.
        ikeboy 7y ago
        Accounting wise, the fact you made a profit on futures is unrelated to your current costs buying in the physical market. Most likely the futures in question aren't being physically settled. Regardless, the economic cost is what determines incentives to raise price for a rational actor. For my claim above to be wrong, Walmart and co would have to be irrational.
aaronharnly 7y ago
I’m totally ignorant about this part of the world, but I imagine they can only reliably sell them for more if someone else isn’t selling them for less. And if the someone else is hedging, they might.

refurb 7y ago

Grocery prices are highly elastic. Yes, if gas prices doubled, Walmart could increase the price of their products, but consumers would likely buy a lot less, and Walmart sales would suffer. Walmart’s focus is on “low, everyday prices”, and future can help maintain those.

ikeboy 7y ago
There is absolutely no more reason to keep prices low if you've made a profit independently on futures than if you haven't. Your marginal cost goes up in both cases. If you're optimising profits, you should make the same decision in both cases regardless of if you bought futures.
- refurb 7y ago
  Your marginal costs don't go up in both cases. If you have futures to buy diesel at $2.50/gal and the diesel price skyrockets to $4.00/gal, you can keep your prices the same. If you didn't have futures you couldn't without taking a loss.
  - ikeboy 7y ago
    This is incorrect. If you have futures, your marginal cost is still $4, since now you're using an additional gallon instead of selling it at market price at $4.
    - refurb 7y ago
      That's an opportunity cost, not an actual accounting cost.
      - ikeboy 7y ago
        Accounting wise, the fact you made a profit on futures is unrelated to your current costs buying in the physical market. Most likely the futures in question aren't being physically settled. Regardless, the economic cost is what determines incentives to raise price for a rational actor. For my claim above to be wrong, Walmart and co would have to be irrational.

aaronharnly 7y ago

I’m totally ignorant about this part of the world, but I imagine they can only reliably sell them for more if someone else isn’t selling them for less. And if the someone else is hedging, they might.