December 24, 2016

What if You Don't Have the Cash to Do Any Hedging? [VIDEO]

 |  By: Anna-Lisa Laca

Producers throughout the farming community are struggling in the face of low commodity prices. Many industry experts advise managing risk with marketing strategies like hedging or futures and options programs. But what if you don’t have the cash to do that right now?

One option is taking out a hedging line of credit at the bank, according to Tommy Grisafi of Advance Trading.

“Things were really tight a few months ago,” he says.

Grisafi says despite record prices just a few years ago, farmers have burned through much of that acquired equity, and many are maxed out on their operating loans. 

“As you come to a record crop, you need to keep hedging and protecting,” he says. “Some farmers can barely get out of the field, but soybeans are rallying 15 cents per day, so you have to do something.”

Grisafi says obtaining a hedging loan is as simple as going to the bank and asking for one. He says farmers need to tell them how much money they will need and what kind of marketing program they plan on being involved in. Come with a plan, and you probably won’t come away empty-handed, Grisafi says.

“I’ve never had a bank say ‘no,’ by the way,” he says.

Farmers run multi-million dollar businesses, and in every other industry, this kind of loan is totally normal Grisafi says. It’s better for recordkeeping to separate money into separate loans instead of clumping it into your operating loan.

“In the end, when you take your P & L from futures and options and put it together with your cash sales, it’s a lot easier to keep clean,” he says.