Advanced E-Mini Trading Course

An Example of Hedging Expected Grain Purchases This example is designed to show how your net price as a hedger is determined by a combination of the futures market and the cash market.

Several important issues are not addressed, including what share of your total needs to hedge, when to place and lift the hedge, the broker’s commission, and margin calls.

The focus of the example is on how the outcome of a long hedge is related to both a cash position and a futures position. Additionally, the example uses several cash and futures price changes to demonstrate what circumstances bring about different hedging outcomes.

Assume it is late fall and you have placed 200 head of steers in the feedlot that should be ready for market in early to mid-May. Assume you expect to purchase 140 tons (5,000 bushels) of corn in early February to meet your feeding needs for February and March. Local corn for February delivery is currently selling for $2.80 per bushel, and March corn futures are trading at $2.50 per bushel. The normal February basis is +30 cents (or 30 over).

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