Using Derivatives for Commodity Price Risk Management

ABC Capital is advising a corporate client that is heavily exposed to fluctuations in commodity prices due to its business operations in the manufacturing sector. The client is concerned about potential adverse price movements in raw materials, which could significantly impact their profit margins. As a wealth manager specializing in risk management strategies, recommend the use of derivatives as a hedging tool to mitigate this risk. Your response should include an explanation of the different types of derivatives available, the specific derivatives that would be most appropriate for this situation, and how these instruments can effectively reduce the risks associated with commodity price volatility.