farmers, page-4

hi parkera

I'm not sure they have sold all of this year's crop yet (partly because they don't know how much crop they have yet).

I spoke to a company rep a while back and asked what percentage of the crop they had sold and he refused to say. He did not say anything about them being required to forward sell the whole crop. I might have this totally wrong of course.

But for the time being I'm working on the assumption that Tandou would likely use a neutral hedge similar to PrimeAg which forward sold 50% of its expected cotton crop. It is my understanding that any more than that and the hedging increases rather than mitigates their risk. For instance if the spot prices hold up and they have hedged at a relatively low price then they have dropped a bundle. If they have a poor crop and cannot supply the cotton they've already sold then in effect they need to make up the difference by buying at current market prices.