This article suggests that an increasing number of farmers are seeking to manage and hedge their financial risks by entering into financial and commodity exchanges.
The article also points out that these types of products are to "manage your risk, not for speculation, but control".
Some view hedging products as "speculation" or a "gamble". The intention is to try and benefit from any variances in commodity exchange rates, by agreeing to a set rate. Different products exist where businesses could attempt to benefit from either an increase or a decrease in commodity rates.
However, as with anything, when the arrangement works the way that it is intended then no issues arise. When used properly hedging can be an excellent tool for managing risk. Where businesses often encounter issues is where they fail to fully appreciate or understand the consequences of entering into such agreements.
If managing risk by entering into these products appeals to a business then I strongly recommend that they seek independent financial advice from a hedging specialist.
When things do not work out as expected, this can have significant financial implications that result in considerable loss.
If you have taken out a hedging product and feel that it is not performing as expected, please contact Sophie Samani 0121 214 1215 or email Sophie at firstname.lastname@example.org
Farmers who have traditionally hedged their grain price by forward selling to a merchant are understanding they need to spread their counterparty risk and attain the keenest price available. In the same way that global businesses hedge their risk through the financial and commodity exchanges, we are finding that many farmers are now looking to the same markets to help manage price risk within their own business. The exchanges offer liquidity, transparency and security and these exchanges may be accessed through well-funded and regulated brokers.Futures and options can be used to help manage your risk, not for speculation, but control.