HEDGING WORKS: Myth or Reality?

Only a small percent of agricultural producers utilize hedging tools effectively to manage price risk and maximize product prices or minimize input costs. Since hedging techniques are used extensively by commerical interests in what may appear to be the disadvantage of producers, it is essential that producers use the techniques for their advantage to balance the market forces. Correctly used in a comprehensive marketing plan hedging can have a significant positive effect on the profitability of the farm business.

"HEDGING WORKS: Myth or Reality?" was written to educate, motivate, and challenge agricultural producers to make better use of the wide array of tools available to manage price risk and increase profits. The primary focus is an "easy read" for newcomers who are in the early stages of developing their marketing skills, but contains material which should challenge the most experienced marketers if they are not consistently achieving risk transfer while obtaining prices near the top of what the market offers.

The early chapters discuss key issues which complicate marketing plans, and the reasons that many popular marketing strategies are inconsistent or ineffective. One chapter addresses the subtle but significant differences between selling, pricing, and hedging, and why the required tools will differ. One chapter reviews the performance of more than 35 popular strategies for grain marketing over a seven year period, and another chapter chronicles the development of a livestock hedging plan from conception to evaluation. The final chapter extends the discussion of hedging techniques to an equity portfolio.

The book is based on the author's relatively unique combination of academic career"talking the talk" and practical experience "walking the walk" to develop and manage a real time hedging program. The collision of theory and practice revealed several missing pieces and motivated the author to share his experience building bridges across some of those gaps.