Hedging Corn, Soybean and Wheat Futures, Hedge example.
Go To Directory

Hedging Soybeans - Example

Hedging Soybeans




Hedging in the futures market is a two-step process. Depending upon the hedger's cash market situation, he will either buy or sell futures as his first position. For instance, if he is going to buy a commodity in the cash market at a later time, his first step is to buy futures contracts. Or if he is going to sell a cash commodity at a later time, his first step in the hedging process is to sell futures contracts.

The second step in the process occurs when the cash market transaction takes place. At this time the futures position is no longer needed for price protection and should therefore be offset (closed out). If the hedger was initially long (long hedge), he would offset his position by selling the contract back. If he was initially short (short hedge), he would buy back the futures contract. Both the opening and closing positions must be for the same commodity, number of contracts, and delivery month.

Hedging Soybeans with futures contracts

Example: Assume in June a farmer expects to harvest at least 10,000 bushels of soybeans during September. By hedging, he can lock in a price for his soybeans in June and protect himself against the possibility of falling prices.

At the time, the cash price for new-crop soybeans is $6 and the price of November bean futures is $6.25. The delivery month of November marks the harvest of new-crop soybeans.

The farmer short hedges his crop by selling two November 5,000 bushel soybean futures contracts at $6.25. (Typically, farmers do not hedge 100 percent of their expected production, as the exact number of bushels produced is unknown until harvest. In this scenario, the producer expects to produce more than 10,000 bushels of soybeans.)

By the beginning of September, cash and futures prices have fallen. When the farmer sells his cash beans to the local elevator for $5.72 a bushel, he lifts his hedge by purchasing November soybean futures at $5.95. The 30-cent gain in the futures market offsets the lower price he receives for his soybeans to the cash market.

CashFutures
JunePrice forSells 2 November
new-crop soybeans atsoybean contracts
$6.00/bushelat $6.25/bushel
SeptemberSells 10,000 bushelsBuys 2 November
soybeans atsoybean contracts at
$5.72/bushel$5.95/bushel
ResultCash sale price $ 5.72/bushel
Futures gain + .30/bushel
Net selling price$ 6.02/bushel

Had the farmer not hedged, he only would have received $5.72 a bushel for his soybeans - 30 cents lower than the net selling price he received. Click here to see self-study guide to hedging grains (pdf). Or to see contract specifications, click here to see Grain and Oilseed Futures and Options (pdf).


Hedging Soybeans Study Guide Hedging Grains Grain and Oilseed Futures and Options How To Hedge  Soybeans

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.





Corn Direction Starts Chart

Trading Corn Commodity Futures Contracts

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.

===================================================================

Philosophy is to identify the cause and characteristics of direction. Proprietary criteria, definitions and logic are given to a computer which deciphers price, time and volume data, calculates Direction Starts and four types of activity. The four types of activity are categorized and encoded as:

Upward Buying = Buying,
Downward Selling = Selling,
High Selling = HS
Low Buying = LB

  • White vertical line identifies the new day.
  • Bright green line/price highlights the start of a potential segment (trend).
  • Blue line/price is for tolerance and getting out.
  • Basic Segment Sequence: 1) a Start, 2) market continues direction or not, 3) go flat.
  • Up trends are caused by, and feature Buying that dominates selling. Not all Up starts continue.
  • Down trends are caused by, and feature Selling that dominates buyng. Not all Down starts continue.
  • Volume information is sent from the exchanges and is a numerical count.
  • Pacific time and date of the new day are below.

===================================================================

Trading is not easy and timing is a factor.

Some people have busy schedules, projects to work on and simply don't have time to study and monitor markets. Some people don't have a computer connected to receive, and programmed to analyze streaming data from the exchanges. Furthermore, some people might not have the specific market experience or haven't researched in depth the combination of market understanding, market logic and programming. With demands for your time, attention and perhaps attendance, how can you be precise at getting in, when new trends in markets start?

Without all three Ts: Time + Tools + Training, what kind of market timing will one have?

Click here for a complimentary trial of Direction Starts chart service.





Soybean Direction Starts Chart

Trading Soybean Commodity Futures Contracts

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.

===================================================================

Philosophy is to identify the cause and characteristics of direction. Proprietary criteria, definitions and logic are given to a computer which deciphers price, time and volume data, calculates Direction Starts and four types of activity. The four types of activity are categorized and encoded as:

Upward Buying = Buying,
Downward Selling = Selling,
High Selling = HS
Low Buying = LB

  • White vertical line identifies the new day.
  • Bright green line/price highlights the start of a potential segment (trend).
  • Blue line/price is for tolerance and getting out.
  • Basic Segment Sequence: 1) a Start, 2) market continues direction or not, 3) go flat.
  • Up trends are caused by, and feature Buying that dominates selling. Not all Up starts continue.
  • Down trends are caused by, and feature Selling that dominates buyng. Not all Down starts continue.
  • Volume information is sent from the exchanges and is a numerical count.
  • Pacific time and date of the new day are below.

===================================================================

Trading is not easy and timing is a factor.

Some people have busy schedules, projects to work on and simply don't have time to study and monitor markets. Some people don't have a computer connected to receive, and programmed to analyze streaming data from the exchanges. Furthermore, some people might not have the specific market experience or haven't researched in depth the combination of market understanding, market logic and programming. With demands for your time, attention and perhaps attendance, how can you be precise at getting in, when new trends in markets start?

Without all three Ts: Time + Tools + Training, what kind of market timing will one have?

Click here for a complimentary trial of Direction Starts chart service.





Wheat Direction Starts Chart

Trading Wheat Commodity Futures Contracts

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.

===================================================================

Philosophy is to identify the cause and characteristics of direction. Proprietary criteria, definitions and logic are given to a computer which deciphers price, time and volume data, calculates Direction Starts and four types of activity. The four types of activity are categorized and encoded as:

Upward Buying = Buying,
Downward Selling = Selling,
High Selling = HS
Low Buying = LB

  • White vertical line identifies the new day.
  • Bright green line/price highlights the start of a potential segment (trend).
  • Blue line/price is for tolerance and getting out.
  • Basic Segment Sequence: 1) a Start, 2) market continues direction or not, 3) go flat.
  • Up trends are caused by, and feature Buying that dominates selling. Not all Up starts continue.
  • Down trends are caused by, and feature Selling that dominates buyng. Not all Down starts continue.
  • Volume information is sent from the exchanges and is a numerical count.
  • Pacific time and date of the new day are below.

===================================================================

Trading is not easy and timing is a factor.

Some people have busy schedules, projects to work on and simply don't have time to study and monitor markets. Some people don't have a computer connected to receive, and programmed to analyze streaming data from the exchanges. Furthermore, some people might not have the specific market experience or haven't researched in depth the combination of market understanding, market logic and programming. With demands for your time, attention and perhaps attendance, how can you be precise at getting in, when new trends in markets start?

Without all three Ts: Time + Tools + Training, what kind of market timing will one have?

Click here for a complimentary trial of Direction Starts chart service.





You and an Overview of Concepts

Commodity futures trading concepts, principles and strategy.




Complimentary Trial of Direction Starts



Which market(s) do you want to see?

Your Name
E-Mail
Telephone
Country

To stop spam robots, select correct answer: 3 + 5 =


How To Hedge Soybeans With Soybean Futures Contracts

Hedging Crops With USA Commodity Futures and Options

www.USAFutures.com

Member of National Futures Association
CFTC Registered Commodity Futures Introducing Broker Since 1996

10260 SW Greenburg Road
Portland, Oregon 97223
Call toll-free (800) 994-3810

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.

Directory Silver Futures, Options Dow Jones Industrial Average Mini NASDAQ 100 Index Futures Open An Account Send Message