MARKETS
Graph 1: Input costs against price October-December.
one third of the expected production is
hedged at this stage. The costs involved
with hedging must be regarded as part of
the input costs and must be calculated on
the total expected tonnage.
Generally available options are:
Minimum prices:
This type of contract ensures a minimum
price (floor price), irrespective of any fur-
ther market movement. Should the price
decrease the client will have the neces-
sary price protection. Should the market
increase, the client would have the option
to sell at the higher current price. However,
a premium has to be paid for this option.
Minimum/Maximum prices:
This contract ensures a minimum price at
a lower cost, but with the difference that
it has a maximum price as well. Should
the market move to above the maximum
level, delivery would be mandatory at the
maximum level. This option is cheaper
than a pure minimum price, but it poses a
higher risk.
Synthetic minimum price contract:
This contract involves a fixed price, with
an out-the-money call-option which is
bought to ensure further upward potential
should the market increase aggressively.
The only available price would be the
fixed price up to and including the strike
price of the option. Should the market
increase to a level beyond the strike price
of the call-option, the client will share
in the further increase. This strategy is
cheaper than a minimum price and pro-
vides upward potential.
CPC:
The Collective Pricing Contract was made
available by Senwes to assist clients with
hedging. This is a collective hedging
product which is actively managed on
behalf of the client. It is a conservative
strategy with the objective of ensuring
hedging, while still providing an upward
potential in the market. The strategy is
a risk mitigating product which removes
emotion from the hedging decision.
CONCLUSION
When a planting decision is taken, the
profitability of the different crops is taken
into account. A producer should not
neglect to do hedging, since it ensures
that the price upon which the decision is
based, can still be realised during harvest
time.
Producer grain marketers from Senwes
Market Access and Senwes Brokers can
assist you with various pre-season mar-
keting contracts and hedging alternatives
which will suit the risk profile of every
producer.
SENWES SCENARIO | SPRING 2018
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