How to Financial Hedge Organic Corn Prices

How to Financial Hedge Organic Corn Prices

As a purchasing manager, you might have learned that it’s prudent to “buy when you can, not when you need to.” This saying is pertinent because once input prices start to rise, finding a source at a reasonable price can be challenging. One way to mitigate your risk of increasing costs is to use a financial product to offset your exposure.

A case study: Organic corn prices are rising

Let’s discuss an example. You have noticed that one of the critical inputs into your organic poultry feed has started to rise. You want to set up a contract that will allow you to purchase organic corn before it starts to trend higher. Unfortunately, when you call your supplier, he tells you he is unwilling to sell yet. After speaking to a few merchandisers, you decide that you need an alternative method to cap your potential costs.

 

When you look at a chart of organic corn prices, you can see that they are poised to break out. A combination of robust demand and the…

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