Hedgers

A Hedger is either a producer or user of an actual commodity. A hedger might take a position in a commodity market in anticipation of future sale of cash commodities to protect against declining prices or in anticipation of future purchase of cash commodities to protect against rising prices. This way the hedger uses the futures markets to transfer risk against unfavorable price change in the interim. Price changes affecting the hedgers' physical position can be offset by a comparable price change in the commodity position.

The practice of offsetting the price inherent in any cash market position by taking the opposite position in the commodity market. Hedgers use the market to protect their businesses from adverse price changes.

The number and variety of hedging possibilities is practically limitless. A cattle feeder can hedge against a decline in livestock prices and a meat packer or supermarket chain can hedge against an increase in livestock prices. Borrowers can hedge against higher interest rates, and lenders against lower interest rates. Investors can hedge against an overall decline in stock prices, and those who anticipate having money to invest can hedge against an increase in the over-all level of stock prices.

Whatever the hedging strategy, the common denominator is that hedgers willingly give up the opportunity to benefit from favorable price changes in order to achieve protection against unfavorable price changes.

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