Grain Journal - July/August 2008 - (Page 98) Hedging Strategies A GUIDE TO SUCCESSFUL SPREAD MANAGEMENT Spread management is one Maximizing strategy. HEDGING of the more complex parts of Successful spread manageSTRATEGIES the basis trader’s job. There ment could be defined as Philip Luce are probably several reasons managing spreads for maxifor this, but two stand out. mum opportunity and flexOne is that since many ibility. When the basis trader users of the futures market are manages spreads from this not price-neutral basis tradperspective, spread decisions ers, there is no shortage of are made for their impact on information and opinions basis values. about price and spread moveFor example, if your plan ment. is to carry grain over time, and The second is that by nethe market presents spreads cessity, most of the grain that will pay the cost of intermerchandiser’s time and enest (or more) to pursue that ergy is focused on the here and now, and plan, it probably makes sense to lock in disciplined spread management requires that structure and guarantee the ability a big-picture, long-term approach. to follow through on your plan. If part of your plan is to sell price later bushels to create cash flow and free up space, and the market is presenting flat or inverted spreads that will improve the outcome of such a sale, it makes sense to lock that structure in, too. In either case, it wouldn’t be prudent to ignore the potential effects of a spread change. Spread management decisions should be the result of careful thought and a thorough understanding of the risks and opportunities, but the integration of purposeful spread management into your basis trading plans will strengthen your overall program. Philip Luce is a grain merchandising specialist with White Commercial Corp., Stuart, FL; 772-283-2420. Response No. 981 Response No. 982 98 GJ J/A http://www.ferrellross.com http://www.pneumat.com http://www.pneumat.com http://www.ferrellross.com
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