What if You Don't Have the Cash to Do Any Hedging?

October 25, 2016 11:06 AM

Producers throughout the farming community are struggling in the face of low commodity prices. Many industry experts advise managing risk with marketing strategies like hedging or futures and options programs. But what if you don’t have the cash to do that right now?

One option is taking out a hedging line of credit at the bank, according to Tommy Grisafi of Advance Trading.

“Things were really tight a few months ago,” he says.

Grisafi says despite record prices just a few years ago, farmers have burned through much of that acquired equity, and many are maxed out on their operating loans. 

“As you come to a record crop, you need to keep hedging and protecting,” he says. “Some farmers can barely get out of the field, but soybeans are rallying 15 cents per day, so you have to do something.”

Grisafi says obtaining a hedging loan is as simple as going to the bank and asking for one. He says farmers need to tell them how much money they will need and what kind of marketing program they plan on being involved in. Come with a plan, and you probably won’t come away empty-handed, Grisafi says.

“I’ve never had a bank say ‘no,’ by the way,” he says.

Farmers run multi-million dollar businesses, and in every other industry, this kind of loan is totally normal Grisafi says. It’s better for recordkeeping to separate money into separate loans instead of clumping it into your operating loan.

“In the end, when you take your P & L from futures and options and put it together with your cash sales, it’s a lot easier to keep clean,” he says.  

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Spell Check

oconto falls , WI
10/27/2016 01:48 PM

  Sounds more like Tommy"the Bull" Grisafi to me.

Fort Benton, MT
10/26/2016 09:56 PM

  Tommy's pretty slick. Even his hair is slicked back. And the thought is great. However, its easier to talk the talk than do the walk. With volatility today I'd stay clear away from Tommy.

aberdeen, SD
10/26/2016 08:56 AM

  It would be wiser to ask a barber if you need a haircut than to ask a trader if you should barrow more money to pay him. The trader gets paid even if you lose more money. So i would like to be his partner but not his client.


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