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Fort Collins, CO | jross,
Thanks again for the comment.
My view would be that what you're talking about is speculation, not risk management.
We work hard to stay disciplined and not make guesses about market direction. Occasionally (like this year), the market forces our hand a bit one way or another. In general, we try to stay highly conscious of the need to balance limited hedging capital with maintaining a balanced and disciplined exposure (or, better yet, lack thereof) to the market.
There is a significant difference between calculating and mitigating risk and guessing which way the market might be going in the next few days, weeks, months, etc. Measuring and mitigating price risk on completed production is easy. Five thousand bushels stored correctly in a bin and insured is effectively the equivalent of one futures contract (at least with interest rates at current levels) with some basis risk. Choosing whether or not to accept that risk for whatever reason is a different question altogether.
We almost always start from the position that we don't know where the market is going. So we want to mitigate the risk we measure in a flexible way the is capital-efficient and accounts for the many uncertainties of production. To give you an idea of what that looks like, I'm going to include a snapshot of a few parts of the risk summary we frequently send to our clients (they get some fancier charts a few more boxes that break things down in different ways). The snapshot below is the total of all of our corn acres under management adjusted to reflect a typical 1,000-acre block. In other words, this is what a typical thousand acres looks like for one of our producers. Each producer is different, so their exposures will be different based on their circumstances.
As I've said many times in the past, the way we do things isn't for everyone. Our customers usually agree that markets are unpredictable and therefore want to manage their risk. They also tend to be more interested in creating sustainable long-term businesses than trying to outguess the market or sell the high. As always, I'm happy to answer any questions anyone might have about this risk analysis.
Thanks,
James
EDIT TO ADD: Apologies for the delay in getting the image displayed - thanks for your patience.
Edited by qrmllc 5/1/2021 14:43
 (1000-acre example imp (full).png)
Attachments
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 1000-acre example imp (full).png (324KB - 13 downloads)
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Weekly Corn Market Update with updated charts
