Articles Published Below -- Scroll Down To See
1. Hedging With Futures
2. U.S. Pasture And Range Conditions May 2003
3. Economic Analysis Component Of Proposed Research Project
4. Cattle Cycles & Post-Weaning Feeder Cattle Price Cycles
5. Six Key Factors Impacting Today's Beef Prices
6. Will Heifer Retention Come This Cycle?
7. Agenda Outline For Illinois Beef Association, Bloomington, Ill, July 22nd Meeting
8. My Response To the Emails I Have Received To Boycott McDonalds
9. Drought Update For U.S. Cattle Industry
10. U.S. Farm Bill On Country Origin Labeling
11. Why Do Ranchers Need Herd Performance Records?
12. Potential Educational Presentations
posted by Dr. Harlan Hughes 9:41 PM
Hedging With Futures
The concept behind hedging is to enter into a 2nd market with equal and opposite transactions. These two markets are your traditional cash market and the Chicago Futures market and can be used to ”lock in” your market price. This way, if your traditional cash market goes down leading to lower cash price, your opposite transactions in the Futures market increase profits. So... if you loose $1000 in the cash market you should make $1000 in the Futures market. But... if you make a $1000 profit in the cash market, you will loose $1000 in the Futures market bringing your actual net price back to the “locked in” price. The reason for hedging your maket price is to assure your self of getting the “locked in” price. When hedged, you should not have a price short- fall nor will you have a price wind-fall. You indeed do get the “locked in” price. Will you make money with that locked in price? You have to also know your costs of prodution. Costs of production are used to set your pricing objectives. Hedging is one tool that can be used to ensure that you meet your pricing objectives.
Hedging is not for the uninformed. It requires a skill and a focus on marketing; never-the-less, ranchers can attend a hedging seminar and gain the skills to use it effectively. With the uncertainly in today's cattle markets, the idea of marketing with a “lock in” price has considerable management appeal. One bad price year can take a rancher out of business.
posted by Dr. Harlan Hughes 9:27 PM