GRAIN BROKERS
ory that prices are inclined to decrease gradually from March to July due to production certainty applying to a larger extent . The third strategy performed better than the others in terms of average price over time , but the first strategy ensured the smallest variation in realised price over time . It is interesting that the no-hedging strategy realised a better average price than the first strategy over time , but also the biggest variance in realised price .
More recent research by Strydom , Grové , Kruger and Willemse ( 2010 ), as well as Venter , Strydom and Grové ( 2012 ), made a comparison between certain routine strategies and a general or basic strategy over time . The basic strategy involved no hedging in advance and the selling of production after harvest time at the current cash price . The first alternative strategy involved the buying of a minimum price ( put-option ) after planting time . The second alternative was implemented by marketing the crop in three equal parts . The first third during planting time , the second third during the critical pollination phase in February and the last third during harvest time . The third alternative was to
sell the total harvest during the critical pollination phase in February by selling term contracts . The fourth alternative was also to implement 12 marketing intervals , with the production being divided into 12 equal parts ( approximately 3-week intervals ), from planting time to harvest time . Marketing was done by selling July futures contracts .
The general results indicated that the minimum price ( put-option ) strategy realised the highest average Safex price over time . The weakest result over time was to sell everything at one point in time or during harvest time at fixed prices ( short-term contracts ). Measured against variances in realised price over time , the 12-interval selling strategy reflected the smallest variance . The combination of yield ( average realised strategy price against the average Safex price ) and risk ( variance in realised strategy price ) could not identify one strategy as being significantly better than the other . The conclusion was that the choice of a specific strategy would depend on the risk appetite of the producer .
The conclusion or optimal characteristics which are highlighted by the research are as follows : A hedging strategy should be developed and implemented in such a manner as to ensure that the intended production remains hedged on a continuous basis . The strategy should also be able to capture upward market potential totally or at least partially . An important aspect when choosing a strategy and for the success of a strategy , is to know the price level at which production will be profitable . The market offers the opportunity for profitable hedging every season . These opportunities , linked to a simple , feasible strategy which removes downward price risk , but which has the ability to capture upward potential , have to form part of the marketing plan of every producer .
Senwes Market Access can , by means of producer grain marketers and Senwes Brokers , assist producers with various pre-season marketing contracts and hedging alternatives which will suit the risk profile of every producer . A number of the alternative strategies , which comply with the principles to a large extent , are contained in Hansie Swanepoel ' s article on page 62 .
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SENWES SCENARIO | SPRING 2018 61