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In tough times like these, the goal is averting a disaster

The upcoming Hedging Edge workshop offers producers an 
introduction to options, futures, and hedging

It’s come to this.

“It’s all about trying to make it a break-even year or a slight loss year, and prevent it from turning into a disaster year,” said David Derwin, commodities portfolio manager at PI Financial.

A miserable harvest has created an abundance of poor-quality crops and with prices down sharply, producers are going to have to make the most of any opportunities that come along, said provincial crop market analyst Neil Blue.

“That’s assuming we can get the rest of the crops off under the current conditions,” Blue said in an interview earlier this month. “It’s tough, and downright discouraging, with the recent snowfalls in some places.”

So rather than hope for a big price rebound, producers should watch markets closely and move quickly when there’s an uptick, said Derwin.

“When we’re starting to get to some break-even levels, it’s even more important to take advantage of pricing opportunities that the market gives you every now and then,” he said. “In this environment of sideways to lower pricing, we want to make sure we capture those rallies.”

Futures and options are one way of taking advantage of any rallies, said Jonathon Driedger, senior market analyst at FarmLink Marketing Solutions.

“In the current environment, it’s probably more important than ever to try and give yourself a little more flexibility and have a few more tools in the tool box,” said Driedger.

“The ability to incorporate futures and options into the overall risk management strategy really helps open up windows when you can really lock in values and prices.

“They’re not always the best tool in all situations, but certainly, there’s a time and a place where they can be really, really useful.”

This is a good time to learn how to use futures, options, and hedging, he said.

“Over the course of a year, there’s going to be two or three times when understanding how to use those tools will be really effective in helping producers manage risk and increase the flexibility of their marketing,” said Driedger. “When margins are compressed and under a bit of pressure, that can make a big difference on some farms.”

Hedging Edge

That’s where Hedging Edge comes in.

The two-day marketing course, held this year in Nisku on Dec. 14 and 15, offers producers “both an introduction to basic hedging and some hands-on training,” said Brian Kennedy, grower relations and extension co-ordinator at Alberta Wheat.

Brian Kennedy

Brian Kennedy

“A lot of growers have outsourced their marketing, but some are still doing their own marketing,” he said. “Being able to have a better understanding of different marketing tools will help them do a better job.”

Now in its third year, Hedging Edge is a collaboration between Alberta Wheat and Alberta Canola. Driedger, Derwin, and Blue are instructing the course this year.

“We’ve had really good feedback from people who have attended the last two years,” said Kennedy.

The course is designed to “enhance a producer’s knowledge about how the markets function, how to recognize opportunities, and how to take advantage of those opportunities when they do arise,” said Blue.

“It’s a workshop that would be suitable for producers who have often wondered about knowing more about marketing: What is basis? How can it affect me? How can I translate this futures market into something I can use? If I consider using the futures and options market directly, how do I go about doing that? What’s the mechanics of doing that? What benefit can it offer to me?”

Those who have taken the course before (or have some marketing knowledge) may also want to take it again both as a refresher and to gain confidence in using marketing tools, he said.

Hedging Edge covers basic marketing principles, as well as some more advanced strategies, added Driedger.

“For someone who is completely unfamiliar with this stuff, they should know enough to know if they want to start incorporating this into their farms,” he said. “They’ll understand the basics and be able to make the decision as to whether they want to incorporate those tools on their farms.

“Any time you can increase your flexibility, any time you have more ways of managing risk, the better off you are.”

Derwin agrees.

“At the end of the day, it’s about getting a little more comfortable and a little more confident with using all the tools that are out there to better market your crop or livestock,” he said.

“The producers who come out to this are the ones who want to take their businesses to the next level. We all want to improve, but this really allows them to put it into practice.”

About the author

Reporter

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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