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Loose thoughts on hedging
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redrobin
Posted 4/4/2020 07:21 (#8162940)
Subject: Loose thoughts on hedging


Just some rambling thoughts

Hedging requires a sale of the expected month of completion . For example if you buy feeders now and you wanted to hedge a “profit” you would go out 6 months and sell 2 October fat contracts.

There are a couple loose ends here.

You have to guess at cost of gain to some extent. If you have the feed you still don’t know cost of sickness, death loss, weather, etc.

Secondly you don’t address the replacement cost of the next feeder. You could project a hundred dollar profit but if the next feeder costs a hundred and fifty more than the last one you didn’t help yourself much. Of course there are times when the feeder costs

What’s rolling through my head is would it be more beneficial to contract the purchase price of the next feeder at the time you purchase
the first one.

A couple advantages

1 your hedge produces a buy order initially instead of a sell order.
2 it would leave fat cattle on the cash market rather than the committed or hedged
3 you’d have less basis jumpers on the fat side .
4 you would be perpetually long and could capture inflation better.

Just some thoughts.

It wouldn’t have worked 6 months ago I realize.


Edited by redrobin 4/4/2020 07:28
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