| NE North Dakota - 5/7/2024 13:14
I typically don't do a lot of hedging with a broker, but I have started growing Hard Red Spring Wheat for seed production for a local seed dealer. This means I can't just call the elevator and hedge the bushels as I want, pricing is based on dec futures at time of cleaning, whatever.
So I would like to buy Dec 7.00 puts for .30 on MGE to put a floor in until fall on wheat growing in the field. Called my broker that i use sometimes and they suggested using Chicago wheat because it has much better liquidity and MGE didn't even have puts trading farther out than Sept.
My question is, is this a standard practice in hedging spring wheat? I don't feel great about hedging a totally different kind of wheat than I'm growing even if they are somewhat related.
It is typical on longer dated options unless you can get a market maker to get you a quote… which isnt easy with no pits
You can add a spread to the option but this can add risk too
The liquidity in MPLS options is garbage and your slippage you pay is huge versus CBOT, look at the bid ask spreads, they will be nickels and dimes or more in MPLS, versus 1/2 cent to a couple pennies depending on the option in CBOT |
Hedging HRSW in Minneapolis vs Chicago
