Advice for Hedging Your Crops
Feb 06, 2012
Another successful and informative Top Producer Seminar has come and gone. It is always an honor to be asked to speak at this event and I was lucky enough to also be asked to speak to the younger farmers at the Tomorrow’s Top Producer Seminar.
One thing I always like to do is learn from the audience what tools they utilize to hedge their crops. A few things that stuck out in my mind was the fact that not many people in the room (especially the young farmers) utilize futures and options and most have not done any marketing yet for their 2012 crops.
With an increase in input costs for 2012 and the possibility of the U.S. growing a very large amount of grain this year farmers should work on taking the emotion out of the process and look at hedging some crops early on especially if it cash flows for your operation.
For the cash hedger that has not done anything I would say closely monitor the local basis and instead of waiting for previous highs go ahead and get a small portion of your crops marketed. It just makes good risk management sense.
If you only do a small amount you should not have to be concerned with not having the actual production to deliver. Effective cash sales early in the season (based on operational break-even numbers) makes it much easier to manage crops especially in conjunction with the right insurance policy and level.
As a farmer I can appreciate being nervous to utilize futures and options especially if you have rarely utilized them but as a risk management specialist I understand the benefits of getting educated and utilizing these tools in conjunction with crop insurance to effectively market their crops. By spending money on crop insurance money that would have had to spend during the season on the board can be mitigated. When factoring in crop insurance futures and options can be used in a timely and cost effective manner.
Having the right tools (software) will dramatically help you choose the right insurance policy, incorporate it into your marketing strategy and effectively manage your marketing strategies throughout the year. Your risk and revenue changes daily and in order to correctly execute any additional hedging you need to know how it will impact your current financial position.
If enough people respond to today’s blog and would like to have me conduct a webinar on this I am happy to do one so please let me know. Otherwise if you are interested in how to get these tools you can contact me at 707-365-0601 or at Jamie@gulkegroup.com