Marketing your crop through the cash market is not the only tool for farmers to use. A growing group of farmers are using the derivative market with futures and options to manage the volatile risk of commodities. With the increase in price volatility producers have to reach out to use as much of the toolbox as possible. But no different than a new tool for the farm shop you need to know how to use that tool before you hurt yourself. With futures and options, there is no risk of physical damage like a new metal lathe but instead financial damage is possible if you haven’t fully educated yourself.
Brenda Tjaden Lepp, FarmLink Marketing Solutions has created a new product called HedgeLink that is trying to make sure farmers understand these derivative tools. As Brenda talks to farmers in many cities across Canada she is picking up several different viewpoints and an increased scope of the level of education of farmers on derivatives.
Brenda and my discussion centered around the following questions to dig deeper into this very interesting issue:
- Should you trade before you run a hedge account?
- Should you start small and build towards bigger positions?
- Why are so many farmers getting more interested in using futures and options in comparison to ten years ago?
- What are some common mistakes that farmers make when getting started in hedging with futures and options?
- Should you look at the derivative market differently than the cash market?
If you cannot see the below interview with Brenda tjaden Lepp, then click here