SELECTIVE HEDGING

Simply stated, Selective Hedging is choosing when to place or lift a hedge rather than being hedged at all times... Hedging simply is the process of shifting risk to a third party. The most common type of hedging is the purchase of insurance to shift risk for fire, wind, hail, drought, flooding, accidents, liability, etc. The concept is the same, but don't let advisors tell you that you need to have price risk insurance in place at all times to maximize revenue. Unlike the perils listed above, prices don't always fall, and you almost always have time to buy price insurance later if you need it... Agricultural producers routinely shift price risk with contracts of various types (cash, futures, options, etc.) to avoid falling product prices. Timing is important because the prices offered throughout the production cycle can vary dramatically. That volatility is the challenge and the opportunity.