Are you a commodity seller?
If so, here are the 4 steps to commodity hedging.
If you are a commodity buyer, reverse the words “lower” and “higher.”
#1. Can the price go lower?
– If your answer is yes – hedge your crop.
– If your answer is no – you have no idea what you are talking about.
#2. Did prices move lower?
– If your answer is yes – take hedge profits and add them to your eventual cash sale price. Then start back at #1.
– If your answer is no – go to #3.
#3. Did prices move higher?
– If your answer is yes – take hedge losses and subtract them from your eventual cash sale price. Then start back at #1.
– If your answer is no – go to #4.
#4. Is the current price still relatively close to your original hedge price?
– If your answer is yes – it may not be worth it to take profits or losses at this point.
– If your answer is no – go to #2.
Click here for a few ways to get better at commodity hedging.
