Comment Text:
We are a livestock feed manufacturer and grain handler in the states of MO, AR, TX, and OK. During the summer months, we will forward sell feed for the October thru March time frame. The commodities used in our feeds consist of soyhulls, gluten feed, wheat midds, DDGS and other middle proteins. Many of these ingredients are not available to be purchased at the time of the feed sale. We hedge ourselves by using corn futures as a cross commodity hedge. While it is not a perfect hedge, it will protect us against an appreciating grain market. We consistently use this type of cross commodity hedge, year in, year out to protect our financial well being.
Another type of cross commodity hedge we utilize is by using soybean meal to hedge canola meal trades. This has long been industry practice in the feed and canola crushing industries.
As a grain handler, we utilize grain futures to pre-hedge our potential purchases during the harvest season. We will also lock in calendar spreads between the harvest contract time frame and during the time frame we will most likely use or sell our inventory. This allows us to lock in future profits.
These are all well accepted and utilized risk management practices that have been used for the past 35 years of my business career. We have not used these tools as abusive, risk taking positions to speculate our way to profits. They are tried and true tools to help us manage our daily risk. We need to keep these tools in place.
