Putting options on the table
Tom Basnett of Market Check discusses the advantages of using options to manage risk.
While many growers have had a great start to the season and are keen to protect new crop prices, the first important point is to avoid the risky temptation to over- commit grain to forward contracts. Crops may not yield as expected, resulting in washout costs. If a tough spring transpires, cash prices could lift by $100 a tonne overnight.
While it is too risky to commit physical grain at this point in time, there are low-risk alternatives to forward contracting – giving a floor in price with free upside if a tough season transpires or offshore markets rise again.
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