Proper hedging needed in risky market environment
The president of an investment firm who anticipates market volatility to continue says too many crop farmers are missing out on an effective hedging strategy.
Howard Marella, president of Chicago-based Icon Alternatives, tells Brownfield options trade costs less than trading futures, offers protection to the downside and allows for upward potential.
“Education is a big part of it, and that’s the toughest thing. Getting farmers (as) hedgers to understand the math that’s involved. And the easiest way to go about something like that is to figure out how many bushels-per-acre you have, how much you’re going to contract for, what timeline you have, and then we would attach a strategy to that.”
He says uncertainty about the quality of the U.S. crop could spark volatility ahead of harvest, and Marella suggests a more bearish outlook.
“I think the crops are healthy, and the people that I’ve talked to also tell me (the crops are healthy). However, we’ve found the value, so I think we’re going to see some volatility from this (price) area down. But I don’t think it’s going to be a catastrophic move down.”
Marella says longer-term, he expects commodity prices to improve significantly along with the general U.S. economy.