Formerly NE North Dakota, now NW MN | Well, my word of caution would be this- remember that Minneapolis doesn't have the luxury of having a whole bunch of traders to buffer big moves like Chicago. IMHO that lack of liquidity can make that place a scary one to be short anything, because any short position inherently has unlimited risk.
2008 was pretty hard on a lot of people, and a position like this one would have been a painful one to hold. During that short squeeze, it was very hard to time your cash sales with your futures, making the futures less valuable as a hedging mechanism. If you did it wrong you could lose many dollars. That's why, from time to time, I refer to MW as the thunderdome. So, humbly, I'll submit a few ideas for strategies.
- Sell calls into Chicago instead of MW. the market is much more liquid, and by historical standards the MW premium over Chicago isn't very high, so its possible that spread would also work in your favor.
- Build a call vertical, I.e. buy a call that's alot further out of the money. It'll take a little profit out of the move, but then at least you won't "technically" be holding a position with unlimited risk.
- Make sure you have access to an immense amount of capital to plug into your hedge account if everything goes pear shaped.
Keep in mind with all the uncertainty surrounding basis in spring wheat country, the lesson Ray pointed out earlier that, sometimes when an end user can't source product for whatever reason, they just go and bid the heck outa the front month until it knocks loose. In that strange way, basis could make futures hedging in HRSW country really interesting for awhile. |
Let me run this by you....
