Commodity Hedge & Lock In Your Price

A hedge is a futures position that offsets the price risk of a physical crop. A farmer or FPO holding (or growing) a commodity to sell later sells futures contracts now; if the price falls, the gain on the short futures offsets the lower cash price, and vice versa. The result is that the effective selling price is locked in regardless of where the market goes.

Effective locked price = futures price + the expected basis, where basis = local cash price − futures price. You sell futures at today's quote, then later sell your crop in the local market and buy back the futures; the two markets move together, so what you actually realise is the futures price you sold at adjusted by the basis. This tool computes it from your inputs.

Basis is the difference between your local cash price and the futures price for the same commodity — driven by transport, quality, storage and local supply and demand. A hedge converts price risk into the usually smaller and more predictable basis risk. Entering your expected basis gives a realistic locked price rather than just the raw futures quote.

Lots = your crop quantity ÷ the contract (lot) size, rounded to whole contracts since futures trade in fixed lot sizes. The tool computes the number of lots to sell to hedge your quantity and shows the value that covers, so you can see how much of your production is protected and how much is left unhedged.

The hedge ratio is the share of your expected production you choose to hedge. Hedging 100% locks the whole price but removes any upside; many growers hedge a portion — say 50–70% — to protect a floor while keeping some exposure to a rally. Adjust the quantity you hedge in the tool to see the trade-off.

Your physical crop sells for more, but the short futures position loses roughly the same amount, so your net realisation stays near the locked price. A hedge isn't a bet on direction — it removes uncertainty in both directions. That certainty is the point: you give up the upside to guarantee you won't be hurt by a fall.

Farmers, Farmer Producer Organisations (FPOs), traders, processors and exporters all hedge to manage price risk. For a farmer or FPO with a known harvest to sell, a short hedge locks the selling price; processors who must buy later use long hedges to lock their input cost. The same basis logic applies to both.

Yes — selling futures requires posting initial margin and meeting daily mark-to-market (variation) margin if the price moves against the position. Plan for this cash flow: a rising market means the physical crop is worth more but the futures call for margin top-ups in the meantime. Factor margin availability into how much you hedge.

No — it's a planning estimate of the locked price and lots from your inputs. Real outcomes depend on actual basis at sale, contract specifications, brokerage, margin and taxes, and futures trading carries risk. Use the tool to size a hedge and understand the mechanics, then act through a registered broker and your own judgement.