Vous êtes sur la page 1sur 32

1

Price Risk Management


and
the Futures Market
Hedging

2
Market Risk
Economic vs. Product Risk
product deterioration in value ; product destruction
Risk is a Marketing Function (Facilitative
function)
Risk as Cost; Risk Taking for Profit
Farmers Have Unavoidable Price Risk
Risk Transfer May Be Desirable, Profitable
3
Examples of Your Risk
Management
Plant Now, Price Now by Contract
College Tuition (Pay in July for Year)
College Study (Protect Against Low Pay
Job)
Magazine Subscription: Pay for copies in
advance
Home rental contract ; Insurance
4
Grain Farmers Market Risk
Plant in Spring Without Knowing Fall
Harvest Price
Sell in Spring Without Knowing Fall
Yield
Sell in Fall Without Knowing Spring
Price
Store in Fall Without Knowing Spring
Price
5
Farmer Tools For Managing
Price Risk
Cash Sale (at Harvest or From Storage)
Forward Pricing:
Forward Contracts: Cash and Basis
contracts
Hedging using Futures
Options
Minimum Price Contract

6
Futures Markets
Futures Exchanges : CBOT, CME,
KCBT etc.,
Futures price is todays price for
products to be delivered in the future.
Contract specifications
Order execution process (open outcry)
Margin requirements




Date Price per Bushel Action Margin Action Account Balance
Initial margin = $500
Maintenance margin = $350
17-Jan $2.50 Sell July corn Deposit $500 $500
18-Jan $2.52 $400
19-Jan $2.54 $300
Margin Call $200 $500
20-Jan $2.53 $550
21-Jan $2.60 $200
Margin Call $300 $500
24-Jan $2.57 $650
25-Jan $2.55 $750
26-Jan $2.51 $950
Withdraw $450 $500
27-Jan $2.49 $600
28-Jan $2.44 Buy July corn $800
9
Futures Market Participants
Speculators:
Risk Takers
Profit From
Correctly
Anticipating Price
Changes
Could Not Deliver or
Take Delivery of
Futures Commodities

Hedgers:
Have Inherent
Price Risk
Wish to Reduce or
Manage Risk
Could Deliver
Against Futures
Contract
10
Hedge: Definitions
Using the Futures or Options Markets To
Manage Price Risks

A Temporary Substitution of A Futures
Market Transaction for a Planned Cash
Market Transaction

Taking Equal and Opposite Positions on the
Cash and Futures Markets

11
Hedging Decisions
What is my attitude toward price risk?
What do I expect price to do?
What are my costs?
When should I set the hedge? When to
lift it?
What are my alternatives to hedging?
12
Hedging Guidelines
Decide on a definite hedging objective -
reasons, month
Discuss hedging plan with those involved; e.g.
bankers
Know how to calculate your productions costs -
FC, VC, BEP
Follow basis patterns
Hedge reasonable amounts of commodity
Keep adequate records
13
Production and Marketing
Periods
Spring
Planting
Fall
Harvest
Spring/
Summer
Pre-Harvest Period Storage Period
Risk: Plant without
knowing Fall Price
Risk: Store without
knowing Spring Price
14
The Perfect Hedge
(Falling Price Period)
Cash
Price
Futures
Price
Basis
Nov. 1
Dec. 1
Buy @ $2.00
Sell @ $2.50 $.50
Sell @ $1.90
Buy @ $2.40 $.50
Cash sale = $1.90
+ Futures Gain = .10
Return to Hedge = $2.00
10 cent gain
15
Perfect Hedge Returns
For a Perfect Hedge (Basis = Constant), The
Return To The Hedge (Cash Price + Futures)
Will Always Be the Same.
16
The Perfect Hedge
(Rising Price Period)
Cash
Price
Futures
Price
Basis
Nov. 1
Dec. 1
Buy @ $2.00
Sell @ $2.50 $.50
Sell @ $2.10
Buy @ $2.60 $.50
Cash sale = $2.10
- Futures Loss = .10
Return to Hedge = $2.00
10 cent loss
17
The Slightly Imperfect
Hedge

Cash
Price
Futures
Price
Basis
Nov. 1
Dec. 1
Buy @ $2.00
Sell @ $2.50 $.50
Sell @ $1.90
Buy @ $2.45 $.55
Cash sale = $1.90
+ Futures Gain = .05
Return to Hedge = $1.95
$1.95 is better
than $1.90
But not $2.00
18
Characteristics of a Successful
Hedge
Equal and Opposite Positions on Cash and
Futures Markets
Cash and Futures Markets Move In Same
Direction
Predictable Basis Pattern
Nullify Futures Position, Sell on Cash Market
Loss on One Market = Gain on Other Market
Transfer of Risk from Hedgers to Speculators
No Tears, No Regrets
19
Types of Hedges
Short Hedge (Protects Against Falling Prices)
Long Cash, Short Futures
Sell Cash, Buy Back Futures
Long Hedge (Protects Against Rising Prices)
Short Cash, Long Futures
Buy Cash, Sell Futures
Texas Hedge (Not a True Hedge)
Same Position on Cash and Futures Markets
Doubles the Risk
20
Three Farmer Hedges
Perfect Hedge
Useful for Learning; Rare in Practice
Storage Hedge
Set During Storage; Oct. to May
Protects Against Falling Prices
Helps Earn Storage Returns
Pre-Harvest Hedge
Set in Spring
Protects Fall Harvest Price
21
Storage Hedges
Harvest-to-Sale Period (Storage Season)
Risk of Price Decline, Inventory Loss
Will Price Rise Cover Storage Costs?
Carrying Charges:
Storage Costs
Handling Charges
Insurance and Interest Costs
Key to Success: Narrowing Basis Pattern

22
The Storage Hedge

Cash
Price
Futures
Price
Basis
Nov. 1
June 1
Buy/Store @ $2.00 Sell @ $2.50
$.50
Sell @ $2.30 Buy @ $2.40 $.10
Cash sale = $2.30
+ Futures Gain = .10
=Return to Hedge = $2.40
- Original Cost = $2.00
= Storage Return = $.40
- $.40
23
Storage Hedge Rule
The Storage Hedgers Carrying Charge
(Return to Storage) Will Always Equal
The Change in Basis Over the Storage Period
The Storage Hedge Transfers the Basis
Change From the Speculators to Hedgers
24
Hedging Principle
The Basis Determines
the Success
of A Hedge
25
Date Cash Market Futures
Market
October Harvest Price = $3.00 Sell July Fut. = $3.50
Est. J une Basis = $.10
Storage Cost = $.30
Forward Price = $3.50-.10= $3.40
Storage Profit= $3.40 -3.00 - .30= $.10
June Cash Sale @ $3.30 Buy Back Fut. @ $3.40
Return to Hedge: $3.30 + $.10 = $ 3.40
Corn Storage Hedge
26
Pre-Harvest Hedge
Set During Planting or Growing Period
Protects Against Harvest Price Risk
Will Harvest Price Cover Production Costs?

Locks-In Fall Harvest Target Price
Key to Success: Requires Accurate
Harvest Basis Prediction
27
The PreHarvest Hedge

Cash
Price
Futures
Price
Basis
May 1
Planting
Nov. 1
Harvest
Plant at Target
Price:
$3.00-.40=$2.60
Sell @ $3.00
Sell @ $2.40
Buy @ $2.80
Expected
$.40
Cash Sale = $2.40
+ Futures Gain = .20
Return to Hedge = $2.60 = Spring Target
28
Date Cash Market Futures
Market
May Sell Dec Fut. = $2.80
Cost of Production = $2.10
Forward Price = $2.80-.30 basis= $2.50
Expected Profit= $2.50 -2.10 = $.40
Oct. Cash Sale @ $2.40 Buy Back Fut. @ $2.70
Net Return to Hedge: $2.40 + $.10- $2.10 = $ .40
Corn Pre-Harvest Hedge
Expected basis = $.30
29
Calculating the Return
To a Hedge
Today: Current Futures Price...$4.00
Less: Expected Basis at Sale Time .. .50
Equals: Lock-In Forward Price..$3.50
Future Sale: Cash Price..$3.00
Plus/Minus Futures Transaction $.50
Equals: Total Return to Hedge... $3.50
Less: Costs (Prodn. Or Storage).$3.20
Equals: Net Return To Hedge...$.30
30
Combination Pre-Harvest
and Storage Hedge
May 1998 Target $3.00 Sell@$3.40
$3.40-.20 Est. Spr.
= $3.20 basis=$.20
Cash Dec. 98 J une 99
Market Futures Futures
May 1999 $2.30 xxxx Buy@$2.50
Return to Hedge: $2.30 + .90 =$3.20
31
Why Dont More Farmers
Hedge?
Lack of Understanding of Hedging
Mistrust of Futures Market
Prefer Ease of Forward Contracts
Like Risk; Prefer to Speculate on Cash
Market
Dislike Margin Calls
Other????
32
Summary: Risk Management
Tools
Hedging
Options
Forward Cash Contracts
Basis Contracts
Minimum Price Contracts

Vous aimerez peut-être aussi