If prices are expected to drop, your hedge would be for that somewhere around the price you expect it to be wouldn't it? Say you expect 3TB hard drives to be $110 in 3 months and the current price is $130. You may buy a contract for $115/hd - if someone is willing to sell you that contract.
Typically if you're hedging a commodity for actual use, what you're trying to do is to lock in your cost and not to make money out of it. Let's look at an airline for example. The price of oil currently is $90/barrel and I think it might go up even more to $120/barrel. I buy a contract for 100 barrels of oil at $100/barrel deliverable in 3 months. Say I use 100 barrels of oil every 3 months. I now know that my fuel cost is now $10,000 for those 3 months. This then allows me to price my product based on that $10,000 assumption.
In the case of hard drives, I have no idea if it would be a good idea to hedge since the prices keep on dropping and the Thailand flood is not an everyday occurance and in general prices of hard drives are pretty stable and don't fluctuate like oil prices. But fundamentally, you're not trying to avoid losing money; you're trying to lock in your cost so you can price your service accordingly and not be in a bind if the price of your commodity fluctuates.
Typically if you're hedging a commodity for actual use, what you're trying to do is to lock in your cost and not to make money out of it. Let's look at an airline for example. The price of oil currently is $90/barrel and I think it might go up even more to $120/barrel. I buy a contract for 100 barrels of oil at $100/barrel deliverable in 3 months. Say I use 100 barrels of oil every 3 months. I now know that my fuel cost is now $10,000 for those 3 months. This then allows me to price my product based on that $10,000 assumption.
In the case of hard drives, I have no idea if it would be a good idea to hedge since the prices keep on dropping and the Thailand flood is not an everyday occurance and in general prices of hard drives are pretty stable and don't fluctuate like oil prices. But fundamentally, you're not trying to avoid losing money; you're trying to lock in your cost so you can price your service accordingly and not be in a bind if the price of your commodity fluctuates.