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| "If not leave them on"
Leave them on until what? Surely you get out sometime? Just wait till the market goes down enough to let you off the hook?
In my mind, selling the futures is much more dangerous than buying the futures (not that buying the futures helps him any). Let's say that today you decide that $4.15 March futures is a really good price. You contract with the elevators 60,000 bu (60% of your expected production). Then on the futures you sell the remaining 40% (40,000 bu). Now the price goes to $8.00 on the futures because no one can get their crop planted this spring for whatever reason. You now have to write check to your broker for $154,000. Now lets say that next fall hyperinflation kicks in like lots of people are saying. Corn goes up to $30 a bu. Now you're looking at another check for $880,000. At least that's the way I understand it. Sounds kinda scary to me. It's an unlimited upside. At least when you buy on the futures you know it can't fall lower than zero so you can't lose more than a certain amount. If you sell you can lose an infinite amount. | |
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How do you price/protect 'unknown' production?
