The Rural Voice, 1986-10, Page 25replacing physicals with limited
risk CALL OPTIONS.
Live Hogs - For the first time in
five months, the monthly hog
prices did not appreciate signifi-
cantly. October hogs finished at
56.47 on September 16, a decline
of .33 from levels of a month
before. Levelling cash markets and
profit taking might be responsible
for the slight fall in prices recently.
Producers should watch for the
quarterly hog report due out
September 22. June's report was a
doozy! Traders expect the report
to show inventory levels below last
year's levels, with some movement
toward expansion and increased
farrowing intentions during the
December/February period. The
report is expected to show a tight
inventory position into at least the
second quarter of 1987.
**HEDGERS** might consider
some sell hedges (locking in selling
prices) in the April, June, July,
and August time frame, using
limited risk PUT OPTIONS. If the
quarterly report does indicate in-
creased breeding activity, pro-
ducers might then become more
aggressive hedgers, via short
futures positions. Watch your feed
costs! Call options are cheap right
now — everyone is convinced that
beans and corn are going lower.
Why not insure yourself against
the improbable?
Just a Word About ...
Cash Grain Marketing
Alternatives
It's that time of year again. Let's
briefly review some common
marketing alternatives.
1. Sell cash: straightforward,
producer sells grain off the com-
bine, cash on delivery.
2. Forward contract: producer
negotiates a price prior to harvest,
no basis risk, committed to deliver
to a specific location, cash on
delivery.
3. Option contract: producer
negotiates basis but leaves the
futures price to float, no basis risk,
futures risk, committed to deliver
to specific location, some cash ad-
vance.
4. Short futures hedge: producer
stores grain and sells futures, basis
risk, margin required, can deliver
when and where desired.
5. Put option hedge: producer
stores grain and buys put option,
basis risk, no margin required,
premium paid for option,
unlimited upside potential,
delivery when and where desired.
Several other strategies exist:
selling grain/buying futures, sell-
ing grain/buying call options, op-
tion contracting/selling futures,
etc. Each strategy has its merits
and disadvantages. The producer
who is conversant with these types
of marketing ideas is the producer
who will be able to recognize which
strategy would be most ap-
propriate for a given situation.
Good marketing! ❑
The information contained
herein is believed accurate;
however, Bache Securities Inc.
assumes no responsibility for its
use. For specific recommendations
and suggestions regarding stop
orders, please contact your nearest
Bache office.
David Clarke is an account ex-
ecutive with the investment firm of
Bache Securities Inc., 376 Rich-
mond Street, Suite 200, London,
Ontario, N6A 3C7, 1-800-265-
1570.
1
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LIFE • HOME •AUTO • COMMERCIAL• FARM • TRAVEL
OCTOBER 1986 23