There are three main exchanges available for grain producers to hedge their production: the Australian Stock Exchange (ASX), the Chicago Board of Trade (CBOT) and the Winnipeg Commodity Exchange (WCE).

While the traditional hedging products for grain producers have been based on international markets, the basis movement between the Australian cash price and the International market during drought has highlighted the value of hedging using the Australian Stock Exchange.

In the past, producers wishing to forward sell using an Australian market were required to enter into forward contracts. The recent drought has higlighted the difficulty that can arise however when contracts can't be delivered against and must be rolled forward or washed out.

The Australian Stock Exchange (ASX) now offers futures contracts for Feed Barley, Milling Wheat, Feed Wheat, Canola and Sorghum, allowing producers to hedge prices using the local market which moves according to local conditions.

A hedge using the ASX requires the following steps:

1. Establish an account with a broker
2. Estimate production levels for the following harvest
3. Determine target prices
4. Determine the most appropriate hedging product. This may be on the ASX, CBOT, WCE. You may like to use Futures, Options or Swaps.
5. Determine what percentage of estimated production you wish to hedge
6. Place your orders with the broker
7. As the season progresses and production levels and market prices become clearer, you should increase or unwind your hedged position as appropriate
8. After harvest, you will either cash settle or deliver against your open contracts as desired

For more information please contact the ACU office or visit:

Australian Stock Exchange Grain Futures

Chicago Board of Trade Agricultural Futures

Winnipeg Commodity Exchange