|
Latimer Iowa | I agree w1891. Renting ground, buying seed, fertilizer, etc, without selling the crop is the true speculating as its putting oneself in a risk position. The major part of the per acre costs is land expense and land is also the one that a farmer has least control over.
Putting unpriced grain in a bin at harvest really turns into speculation as a farmer no longer has the government sponsored revenue guarantee (option) that sets the bottom. Selling grain ahead on the board, up to production levels/insurance levels, on the day that land is rented, is the least risky path out there.
A true hedger would be selling the grain, whether physical or on paper, the day they lock in the price of the majority of the variable inputs (land), at expected production levels. Then they just operate on the profitability margin. Or if there is no money in it and a negative return they shouldn't be renting the ground, buying the seed, etc. We all know that sometimes ground is rented at a negative profit margin with the speculation that sometime before the grain is sold, whether physically or paper, that the price will go up.
The government artificially subsidizing the grain market with revenue insurance really gives the opportunity with the board to hedge the crop on rallies, then lift the position when/if the price falls. If the price never falls or it goes higher, a farmer is just operating on their profitability margin. If the price goes down, they can buy back the grain and still have the revenue policy in the back guaranteeing their minimums. Lifting the positions is not hedging though, it is speculation that the prices may go up again. To really muddy the water, I suppose the crop insurance could be looked at as a hedge? Very hard to define though as with anything the government inserts itself into....
As long as someone is only selling their production, buying their usage, it is not speculation, its controlling business incomes and expenses and is the purest form of hedging the risk there is. | |
|
Down .15 corn and .50 beans
