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| ask a simple question ..
well there's your first lesson, nothing is simple in this marketing business.
To hedge is to protect an area of price forward in time.
This is the prime reason the futures markets were founded,
to offer buyers and sellers a way to complete a transaction all year round.
The specs got involved because they smelled blood (money) in the water ..
and they attempt to profit by providing the liquidity (money) to those that are looking to buy (sell).
As a grower you are always long the market .. you have the crop in the yard.
As a user they are always short the market .. they require your harvest to complete the final product, say ethanol.
While the basics of a hedge are pretty well established,
there are always twists and turns involved to make them complex,
and every product/harvest requires a different strategy.
There's a good piece on the basics here ..
http://www.agmrc.org/agmrc/business/operatingbusiness/grainpricehed...
and please understand ..
you donot make money using a hedge ..
you make money selling the crop.
Someone once said ..
the futures price is where both parties expect the price will NOT BE next week (month).
pbear | |
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Define what Hedge means???
