P&G's $1 billion bet against hedging

Why Procter & Gamble doesn't hedge commodities — and the case for natural hedging.

One billion dollars. That’s the profit hit Procter & Gamble says it could face in FY27 from rising oil costs. The company has a policy of not hedging commodity costs with derivatives.

With such a large potential loss it seems strange then to ask "should they have hedged"?

But P&G's commodity risk strategy isn't an oversight — it's an explicit choice. They prefer to use “natural hedging” - a globally diversified portfolio, sourcing flexibility, cost cutting and pricing power, to recover costs over time.

Their strategy has been stress tested before. In FY22, the same approach produced a $2.3B cost headwind for them. Margins compressed 350bps in a quarter.

P&G are ultimately betting that they can pass on increased costs to consumers faster than the market moves against them.

This kind of bet could work in categories with pricing power and sticky demand. P&G has both but it’s landing in a year when consumers are already squeezed and cost-of-living concerns are mounting.

With their size and brand the bet might pay off. If you’re not P&G then the lack of a formal hedging program could be terminal.

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