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Old 10-27-2018, 09:48 PM   #2395
Buehler445 Buehler445 is online now
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Join Date: Apr 2007
Location: Scott City KS
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Originally Posted by Discuss Thrower View Post
How do you guys engage in futures / forwards deals?
Lots of different options out there.

As far as I go, I typically try hedge up front (sell contracts on the board) up to my MPCI (Multi Peril Crop Insurance) guarantees. I'll push that if it's fairly close to harvest and I'm confident I have a better crop out there. The elevators will convert them to forward contracts if the basis is favorable prior to harvest. Typically, I chicken out and sign basis contracts if that is the case. A lot of times if you don't grow it (hail or whatever), it's easier to get out of a basis contract than a forward one where you have to eat shit on the whole thing.

Other options are Hedge to Arrive a the elevator. That is essentially the elevator selling the contract for you. You set the basis at a later date in which it is a forward contract.

You can also buy puts. That will keep you from making margin calls but I'm too cheap to buy the time value, which always eats your ass. Every time I've the market went against the physical and bought puts, they've yielded around half of what it would have been if I'd sold contracts. If market goes up, sure there wouldn't have margin calls, but the premium is unrecoverable. Every time I buy puts instead of selling contracts, I'm pissed off about it.

I try to keep most things on the board because I'm chickenshit. However this year, I'd have gotten my shit wrecked on wheat. I zeroed out A LOT of acres with hail and would have had to pay a lot if I hadn't kept it on the board.

I've also on occasion sold the physical grain and bought it back on the board to stop storage and essentially retain ownership. That's technically not a hedge, but there is feasibly little chance you'd get caught by the IRS. (speculative losses are limited to 3,000. Hedging losses are not limited)

Like I said, there are a heck of a lot of ways to do it, but that's largely what I do.
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