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 planted 1000 acres of corn with expected total production of 190,000 bushels. He has already priced 40,000 bushels, but remains exposed on the other 150,000 if corn prices are lower at harvest. He is also about 30% less hedged than the HedgeTRAK recommendation based on time of year and profitability.
Executing the following trade-buying 30 contracts of December 3.80 puts for a cost of 16 cents per bushel sets a floor of $3.64 on all his remaining bushels and brings him up to the high end of the HedgeTrack recommendation.
Standard Matrix: Note the $49 an acre profit based on current corn prices that can swing to losing $12 an acre if the price breaks down to $3.32 at harvest.
The matrix + test: Note that profitability has essentially been flattened at $27 on the downside, with the put options in place to protect 150,000 bushels. Anderson still has plenty of room to improve if the price of corn rallies into harvest.
The trade itself: Buying 30 CZ17 3.80 puts for 16 cents per bushel.