In recent newsletters for our subscribers, I predicted that the drought-driven bull markets would eventually attract a lot of media coverage. Coverage about the drought’s impact on food prices. About food security. About climate change, even.
The current market situation is a historic one: we are seeing devastating drought in the US, but good crops in Canada. Disaster for American farmers, bounty for Canadians. Dramatic upward revisions for crop profits are taking place. This week saw one of the biggest rallies ever for corn futures; soybean futures were driven to the highest level in four years and came within 20 cents of their record high; and wheat futures jumped the most in 16 years.
Wondering when to hedge, or how to do it successfully? While each situation is different, the following tips may provide some guidance around when to hedge, and how to get the best results when you do.
1. Decide whether you’re hedging to lock in a good profit for your crop or to make a buck in futures. If you’re doing it because it makes sense for your farming business, it’s probably a good decision. If you’re doing it just to make some money trading futures, you’re embarking on what could be a slippery slope of painful speculative losses.
In my last post, I mentioned that I often share book recommendations with customers and other people I meet – and as part of my series of suggestions, here’s another to consider adding to your reading list.
It’s The Black Swan, by Nassim Nicholas Taleb. This one is harder going than my previous suggestions, but if you’ll take your time with it, gleaning bits and pieces of wisdom, you’ll find lots.
I frequently share book recommendations as part of my conversations with customers, and sometimes I hear back from them on how certain books have made an impact on them.
The “recommended reads” posts will be part of a series in which share some of my favourites with a few comments on why I think they’re valuable and how they’ve shaped my view of the markets and agribusiness.