LEVEL OUT PRICE RISK By Lisa Graham-Peterson Over-the-counter derivatives help off er marketing opportunities. Simplifi ed Peace of Mind CHI COMPASS products help level out price risk with alternative grain and energy contracts that simplify decision making and execution. Some provide market protection using averaging, while others resemble exchange-traded options with nontraditional expiration dates. Elevators that provide CHI COMPASS contracts off er producers a much-needed program. Three years ago, when Russ Braun joined Primeland Cooperative, Lewiston, Idaho, to lead its grain department, it didn’t take him long to bring these contracts from CHS Hedging on board. “Once producers understood how to execute them, the contracts really became popular,” Braun says. “Contracted volume is beyond our expectations. Some of that has been due to extreme market volatility, of course, but it just makes sense that you’re going to have better weighted averages with these, and that beats trying to guess the top of the market on any given day.” Braun notes that producers value the contracts’ pricing fl exibility and appreciate having several to choose from, depending on an individual’s marketing mix and personal risk tolerance. The popular Cash Plus contract, for example, provides a premium or “push” in the price of old-crop grain in exchange for a fi rm off er on an equivalent number of bushels at a specifi c strike price. It’s a great way to enhance old-crop bushels while making a new-crop bushel off er at benefi cial levels, Wagner explains. “We preach being in the market eight, nine, 12 months of the year,” says Braun. “With the addition of CHI COMPASS contracts, we’re able to off er producers four or fi ve diff erent options to market their grain. “But, most important, producers can be price makers, not price takers,” he adds. SEE MORE: Visit chsinc.com/c to see a video on CHI COMPASS contracts. ,, Everybody will tell you they have a plan to market their crop or livestock,” explains Steve Wagner, market analyst with CHS Hedging. “Of course they do. That’s because every spring they have to lay it all out for their bankers. The minute that’s done, in the desk it goes — bam! Now, let’s go planting.” Wagner mimics slamming a drawer to emphasize his point that too many producers think about marketing only when they have to. This can mean missed opportunities to use the variety of marketing instruments available for commodities. Among them are over-the-counter (OTC) derivatives. CHS Hedging off ers a suite of them under its CHI COMPASS® family of products. “Most OTC products are time-specifi c, price-specifi c or volume-specifi c,” says Wagner. “CHI COMPASS contracts are fl exible on all three aspects, which is very appealing to producers. That level of control is important to them. “It’s one more tool in the toolbox,” he adds. “It’s not for all your production — maybe 10 to 20 percent — but enough to make a diff erence as part of the mix.” As a producer himself, Steve Wagner knows all too well the value of having a variety of tools available to reduce risk when marketing crops. Your CHS Connection 21
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Level Out Price Risk
Lisa Graham-Peterson
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