Thought I might I might carry on a conversation with cottonpicken on hedging from another thread.
You commented that all grain companies are likely to carry positions in the futures market versus being hedged. May be putting words in your mouth.
My experience was just the opposite. the most effective grain company traders I saw were ones that watched what they paid for grain coming up the driveway, what they were selling to customers for and the costs in between. They consistently brought in profit for the company. When they couldn't lock in both sides of the transaction, they hedged their margins. My experience is this type of trader went home relaxed everynight and generally had long careers with their company.
Also knew traders who consistently had a market position on (short or long). Tended to always be nervous/up tight because they were either heroes (making the company money) or fired (lost the company too much money). Eventually always ended up being the latter.
Will note there is another group of hedgers that our conversations have ignored and that is grain/oilseed users. Would agree with you that this group should also be hedged. Would not want to be 100 % short this market if I were a feedgrain user or processor. Perhaps part of the reason we have $4/bu corn futures and $7/bu soybeans.
The group I suspect you are referring to is hedge/spec funds. What they add to the market is volatility. They can and do run the market higher/lower than it should be for short periods. This factor needs to be included in farm managers decisions over the spring/summer.
An interesting thread because right now the farm community is getting pretty bullish. Could be right - I have no idea about what will happen this summer. Still like the expression that the best cure for high prices is high prices.
You commented that all grain companies are likely to carry positions in the futures market versus being hedged. May be putting words in your mouth.
My experience was just the opposite. the most effective grain company traders I saw were ones that watched what they paid for grain coming up the driveway, what they were selling to customers for and the costs in between. They consistently brought in profit for the company. When they couldn't lock in both sides of the transaction, they hedged their margins. My experience is this type of trader went home relaxed everynight and generally had long careers with their company.
Also knew traders who consistently had a market position on (short or long). Tended to always be nervous/up tight because they were either heroes (making the company money) or fired (lost the company too much money). Eventually always ended up being the latter.
Will note there is another group of hedgers that our conversations have ignored and that is grain/oilseed users. Would agree with you that this group should also be hedged. Would not want to be 100 % short this market if I were a feedgrain user or processor. Perhaps part of the reason we have $4/bu corn futures and $7/bu soybeans.
The group I suspect you are referring to is hedge/spec funds. What they add to the market is volatility. They can and do run the market higher/lower than it should be for short periods. This factor needs to be included in farm managers decisions over the spring/summer.
An interesting thread because right now the farm community is getting pretty bullish. Could be right - I have no idea about what will happen this summer. Still like the expression that the best cure for high prices is high prices.
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