A commodity swap is a financial agreement between two parties to exchange cash flows related to the price of a specific commodity, such as oil, natural gas, or gold. One party typically pays a fixed price, while the other pays a variable price based on market fluctuations. This helps both parties manage their exposure to price changes in the commodity market. These swaps are commonly used by companies in industries like energy and agriculture to stabilize costs and revenues. By locking in prices, businesses can better plan their budgets and reduce the risk associated with volatile commodity prices.