02-11-2013 08:09 PM
What are the scenarios?
1. You sell grain at a profit or breakeven. Prices go down. You are happy. You could Texas hedge in various ways.
2. You sell grain at a profit or breakeven. Prices go up. You are unhappy but not broke. You may sell puts, buy futures or calls if you are confident of the outcome.
3. You do not sell and prices go up. You are happy. You can buy calls, sell puts or buy futures to try to ride the prices up if you want to speculate.
4. You do not sell and prices go down. You are unhappy and try to minimize losses by selling on the way down, selling the board or buying puts. You end up losiing money.
In scenarious 1, 2 and 3, you come out even or better. In scenario 4 you lose money.