What does "hedging" mean in commodities trading?

Hedging in commodities trading refers to taking a position in the market that offsets potential losses from another investment. This strategy is commonly used by producers and consumers of commodities to manage the risk associated with price fluctuations. For example, a farmer may sell futures contracts for their crop to lock in a price, thus protecting themselves from the risk of falling prices at harvest time. In doing so, the farmer is not purely speculating on price movements but rather aiming to create a safety net against adverse market changes.

This definition aligns with the essence of hedging, which emphasizes the proactive approach to risk management rather than profit maximization at all costs. Other options, while related to trading, do not accurately depict the purpose of hedging within the context of commodities trading.