Risk Management Check-Up - Considerations Before Harvest
Summer flew by. The kids are back in school, late-season scouting is complete and crop tours are in full swing. It’s hard to read the news these days without hearing about ‘bigger than ever’ yield estimates from across the U.S. We’re now just a few weeks away from my favorite time of year, harvest. Many have been focused on production all summer long, surveying several key crop reports. But I’m wondering, how many people have updated their hedging strategy to align will all the information that’s been shared this year? With very accurate estimates of final cost of production, now is the perfect time to re-evaluate marketing and hedging strategies.
I usually recommend that both producers and end-users of commodities use this month as a bench-marking session. It’s a great time to pull out the spreadsheets from January (around the time we were preparing for final yields of the 2017 crop) and compare estimates with where we are today. This is also a good time to ask some questions:
-
Are you on track with the revenue or purchasing goals you set back in the winter?
-
With updated yield estimates, have you marketed or secured enough grain?
-
Do you feel confident in your marketing, purchasing or storage plan for your grain?
-
Are you positioned to capture market opportunities?
We recently wrote an article about 'do nothing strategies'. At Cargill Risk Management, we believe doing nothing at all, is in fact doing something. If you don’t plan and prepare for the year, what will happen to your end-of-year financials if the unexpected occurs? You’d be surprised to see how planning ahead can impact your financial performance for the end of the year.
For producers, adding market participation to those ‘must-sell’ bushels at harvest can be a strategy that can provide opportunity for price movements as well as limiting downside risk. Implementing this can take many forms, including OTC options allowing customization for price risk management.
If you are an end-user of commodities, have you taken advantage of pricing opportunities? If large crops are realized, do you have your needs for the next 6-12 months covered? Revisiting your risk management plan now can pay dividends into the future.
Securing a price through customized risk management products can be a cost-effective way to gain market participation. These tools allow you to participate in future market moves that benefit your position while limiting moves that do not.
Last, it’s important not forget about the 2019 crop. As the harvest begins, you should be thinking about crop plans and pricing strategies to help ensure 2019 is another year filled with success.
These materials have been prepared by personnel in the Sales and Trading Departments of Cargill Risk Management, a business unit of Cargill, Incorporated based on publicly available sources, and is not the product of any Research Department. These materials are not research reports and are not intended as such. These materials are for the general information of our customers and are a “solicitation” only as that term is used within CFTC Rules 1.71 and 23.605, as promulgated under the U.S. Commodity Exchange Act. These materials are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any swap, security or other financial instrument. These materials contain preliminary information that is subject to change and that is not intended to be complete or to constitute all of the information necessary to evaluate the consequences of entering into a swap transaction and/ or investing in any securities or other financial instruments described herein. These materials also include information obtained from sources believed to be reliable, but Cargill Risk Management does not warrant their completeness or accuracy. In no event shall Cargill Risk Management be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained in these materials and such information may not be relied upon by you in evaluating the merits of participating in any transaction. All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions. Actual results will vary, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice. Cargill Risk Management is a provisionally registered Swap Dealer and operates under “Order of Limited Purpose Designations for Cargill, Incorporated and an Affiliate.”