5 ms·

That’s why you hedge though. Quite a lot of exposure should already be handled well before we get to this point in the season. Ag commodities can be brutal and

by cwal37 4y ago

That’s why you hedge though. Quite a lot of exposure should already be handled well before we get to this point in the season. Ag commodities can be brutal and few people know that more personally than farmers.

tick_tock_tick 4y ago
I think a lot of people have zero idea that farmers sell futures when prices are high to lock in the value of their goods.
- thfuran 4y ago
  But not American onion farmers.
  - bluGill 4y ago
    Onions are effectively a monopoly, the company that packages them contracts the growers before the season so while there isn't a futures market to trade there is the same. (I don't know how effective the monopoly is, could be a number of different companies that compete, but farmers don't plant onions without a contract, and even if they did there is no market if you don't have a contract so the crop is worthless. Potatoes don't have a future market, and they are still planted. Though I believe even then big names like McDonald's contract all their potatoes in advance.
    - dragontamer 4y ago
      That's a monopsony, which is the opposite of a monopoly. Monopoly is one seller, many buyers. Monopsony is many sellers, one buyer.
      - bluGill 4y ago
        I never heard that term before, but I'll stand corrected
- koolba 4y ago
  It’s not about high or low to lock in profits, they sell futures well in advance to eliminate uncertainty and hedge their naturally positive position. The speculator buying the future takes on that risk.
  - hattmall 4y ago
    What about when crops fail or fall short, what do farmers do?
    - cwillu 4y ago
      There's an extensive selection of insurance policies. A selection of on set of policies by one provider in Saskatchewan (granted, not the US) can be found at https://www.scic.ca/crop-insurance/program-overview/multi-peril https://www.scic.ca/crop-insurance/program-overview/multi-pe...
    - bluGill 4y ago
      Generally you hedge only about 70% of the expected crop, and then place insurance on that 70%. In a bad year you break even, and you get all the excess in a good year.. also the hedging is not all at once. Farmers are already selling contracts for their 2023 corn crop, but typically only 10% right now. They will contract more and more out over time has harvest grows closer. You have a good idea what you harvest for your 2022 crop by now, so you can contract closer to 100% if you can find a buyer.
ben_jones 4y ago
Modern libertarianism in a nutshell: I have the right to maximize my short-term gains, but if the consequences catch up to me, I will demand subsidies and bailouts from the same society I totally don't participate in.

by cwal37 4y ago

tick_tock_tick 4y ago

I think a lot of people have zero idea that farmers sell futures when prices are high to lock in the value of their goods.

thfuran 4y ago
But not American onion farmers.
- bluGill 4y ago
  Onions are effectively a monopoly, the company that packages them contracts the growers before the season so while there isn't a futures market to trade there is the same. (I don't know how effective the monopoly is, could be a number of different companies that compete, but farmers don't plant onions without a contract, and even if they did there is no market if you don't have a contract so the crop is worthless. Potatoes don't have a future market, and they are still planted. Though I believe even then big names like McDonald's contract all their potatoes in advance.
  - dragontamer 4y ago
    That's a monopsony, which is the opposite of a monopoly. Monopoly is one seller, many buyers. Monopsony is many sellers, one buyer.
    - bluGill 4y ago
      I never heard that term before, but I'll stand corrected
koolba 4y ago
It’s not about high or low to lock in profits, they sell futures well in advance to eliminate uncertainty and hedge their naturally positive position. The speculator buying the future takes on that risk.
- hattmall 4y ago
  What about when crops fail or fall short, what do farmers do?
  - cwillu 4y ago
    There's an extensive selection of insurance policies. A selection of on set of policies by one provider in Saskatchewan (granted, not the US) can be found at https://www.scic.ca/crop-insurance/program-overview/multi-peril https://www.scic.ca/crop-insurance/program-overview/multi-pe...
  - bluGill 4y ago
    Generally you hedge only about 70% of the expected crop, and then place insurance on that 70%. In a bad year you break even, and you get all the excess in a good year.. also the hedging is not all at once. Farmers are already selling contracts for their 2023 corn crop, but typically only 10% right now. They will contract more and more out over time has harvest grows closer. You have a good idea what you harvest for your 2022 crop by now, so you can contract closer to 100% if you can find a buyer.

ben_jones 4y ago

Modern libertarianism in a nutshell: I have the right to maximize my short-term gains, but if the consequences catch up to me, I will demand subsidies and bailouts from the same society I totally don't participate in.