Pricing agricultural products can be tricky without a system in place. Luckily, grain futures helps serve as a cost-setting tool. It assists in implementing contract fairness to buyers and sellers of one of our most commonplace commodities: grain.
Hedging Lowers Price Uncertainty in Varied Crop Production
When it comes to crops, some seasons are plentiful and business is very profitable. Other seasons, things may change. Hedging allows the pricing of a commodity today for future delivery, therefore, it lessens the uncertainty of a future season’s production. The result is that profits are more stable for all market participants.
A Few Hedging Basic Terms
The cash price is lower than the futures price for a commodity. The price difference is called the basis. Selling grain futures the correct way increases profitability for the seller and lowers the risk of the price becoming too high for the buyer. When producers place hedges, the futures price is set for a limited time and delivery is confined to a specific duration.
The Futures Market is Growing
Today, futures trading has expanded to include high-frequency traders of stocks, currencies, bonds, and equity funds. Some are only interested only in long-term investments. They compete with producers and buyers including grain elevators intent on fast and simple trading and selling.
Strategic Hedging is the Answer
Because each market participant is different, a risk management expert knows how to analyze a participant’s situation and goals, and then find a customized solution. That’s the key to the successful trading of grain futures that can make a positive difference in the outcome.
Contact the Risk Management Experts
At Compass AG Solutions, we specialize in raising the sustainability of agricultural operations while minimizing risks. Our team has decades of agricultural experience with knowledge of risk management, customized consulting, analysis, measurement, mitigation, and more. We’re conveniently located in Fort Collins, Colorado. Call us toll-free at 866-433-4350, or visit our website today to find out additional information.
