In conjunction with Silveus Financial’s proprietary hedging benchmark, HedgeTRAK, we balance risk reduction with a farm’s potential profitability to create a multi-year Precision Marketing Risk Plan based on each farmer’s profitability goals.
In this example, hypothetical farmer John Anderson has priced about 1/3 of his expected soybean crop but remains unhedged on 80,000 bushels. Between his cash sales and an 85% RP insurance policy, Anderson is currently 50% hedged against the risk of lower prices, while the HedgeTRAK recommends being between 75 and 85%.
Buying 16 contracts of November $9.10 puts for 10 cents takes Anderson up to 75% hedged and sets a floor of a $9.00 futures price on the remaining expected production.
Standard Matrix: Note diminishing profits vs. lower prices down to $8.44.
The trade itself: Buying 16 SX17 9.10 puts for a cost of 10 cents per bushel.