What is Agricultural Hedging?
Hedging by definition is the transfer of risk. For those who are connected with the commodity markets, this usually means ‘price’ risk associated with the volatility and movement up or down in the price of corn, soybean and wheat, or cattle and hogs, etc. At Powerline, we use financial or ‘paper’ tools to help customers manage that underlying risk (i.e. protect and enhance operating margins or per acre P&L results). Often, farmers do not have stored grain or marketable livestock on hand at a time when prices are high. Farmers and producers hedge using financial contracts as an alternative way to lock in prices in higher priced periods. The instruments we use lay alongside, and work in conjunction with, your current activities/marketing efforts in the physical market, providing another tool to help clients enhance bottom line results. Commercial merchants, producers, and consumers of grains/meats can reduce both their physical (market or supply) and price risk by incorporating financial derivatives. The principal risk management instruments available to participants in the ag markets are the versatile futures and options contracts.
Who Should Hedge?
Any entity’s whose margin or operating results are impacted by increasing or decreasing agricultural and grain prices and/or price volatility should consider hedging. Examples of industry sectors with agricultural price risk:
How Hedging at Powerline Can Help Your Business
We’re about exploring and educating our customers on the availability and implementation of price risk management (hedging) tools that allow you to manage your commodity price risk and protect your profits.
We develop programs for agribusiness clients with many of the tools previously only available to large commercial operators. Let us show you how to utilize futures, options, and OTC contract structures alongside your cash grain marketing and crop revenue insurance to strengthen your bottom line!