Agricultural Commodity Hedging
Model your financial risk against market volatility. This dashboard allows Producers (Farmers) and Consumers (End-Users) to visualize how different hedging strategies impact their bottom line relative to their budget.
How to Use the Tools Below
Select a product in the calculator to see these payoff profiles in action.
1. Unhedged
The Baseline. This represents your physical risk if you do nothing.
- Producers: Lose money if prices fall below budget.
- Consumers: Lose money if prices rise above budget.
2. Futures
The Lock. You lock in a fixed price today using a futures contract.
- Pros: Eliminates all downside risk.
- Cons: Eliminates all upside potential. You cannot participate if the market moves in your favor.
3. Options
The Insurance. Pay a premium to buy protection.
- Producers: Buy Puts (Floor).
- Consumers: Buy Calls (Ceiling).
- Result: Protected against bad moves, but you keep the profit if the market moves favorably.
4. Collars
The Range. A strategy to reduce cost.
- Buy an option to get protection.
- Sell a different option to pay for it.
- Result: You are protected within a specific price band, capping both your maximum loss and maximum gain.
Calculator
Update the inputs below to visualize your riskCenter of Chart
Payoff Profile
P/L vs. Market Price
Concepts
Note on Centering: The chart below is strictly centered on your Budget / Break-even Price. If the dashed line does not cross $0 exactly in the middle of the chart, please check that your Budget Price is set correctly.
- Unhedged P/L (Dashed): Your profit or loss relative to your budget if you do nothing.
- Hedged P/L (Solid): Your final result combining the physical position and the financial hedge.