As a trader you are taught from your first trade to know where the exit is before entering the trade. Trading is a skill that can be learned and used in conjunction with discipline, patience and money management can be a very rewarding career.
Investing on the other hand is also a skill using many of the same tools as a trader, discipline to get out of a bad investment, the patience to wait for the chart or markets to give you the best opportunity and of course not worrying about the day to day market activity realizing that you are in for the long haul.
Farmers are a hybrid of traders, investors and sales managers. They need to be able to do it all and many times their plate is full of things that traders and investors never have to think of. Traders buy a stock, option or a commodity and either make or lose money -- trade is over on to the next one.
Investors and traders may or may not have marketing plans but these plans are essential for farmers who want to stay ahead of the curve and the competition. In a marketing plan you must include your costs, best and worst case scenario for the year and where the money going to come from. Farmers must identify their buyers while preparing for the worst case scenario.
Farmers are invested in their fields growing their "holdings" where anything can happen (bad or good) and be prepared to deal with those events when they happen. When you buy a stock it goes up or down with no hidden costs. When you are investing in agriculture you have many variables and most are bad that you must be prepared for.
When your marketing plan is set and you understand the risks associated with the business, now the season begins. Most farmers, if they take the time to put together the marketing plan, forget the most important part of the plan: Where is my exit? This is the time when a properly formatted, fully understood hedge strategy is in place.
Hedging is not watching the daily price action in the markets trying to pick tops and bottoms while using archaic strategies like naked selling of futures, buying option premium or gambling. These types of hedges actually offer very little protection and often force you out before your time. In business gambling and guessing is a losers game, trying to outsmart the market which is absolute can only lead to pressure and poor decision making.
Agricultural products like equity products can be hedged, protected and set up to save you from the downside while allowing you to benefit to the upside while only selling when you want. You are never forced out of the market, you aren't squeezed out and you will never panic out. The dynamic hedge puts you back in control and should become part of your business plan as a life changing experience.
Proper hedging is a life style that takes care of you at all times. No longer are you sitting on pins and needles waiting for some report that can cause you just enough grief to force you out. Take control of your business, take control of your life and learn to sit back relax and enjoy the fruits of you labor. I believe you have enough to do just taking care of the business.
Keep those stops tight
The views, opinions and positions expressed by the author are theirs alone and do not necessarily reflect the views, opinions or positions of Pro Farmer.