Case Studies

Revenue over Feed Case Study: Hedging Six Months Out

In April of 2015 John Peters looked at the milk and feed future markets. He decided to hedge 2000 cwt per month, the production of about 100 cows, for October, November, and December of 2015 at an$8 floor and a $11 ceiling. He placed his trade with no upfront cost. At the option price of $.43 for the floor and $.43 for the ceiling putting his trade at even money.

In both October and November, the Revenue over Feed price was between $8 and $11 dollars so John Peters did not make nor lose money. However, in December, the Revenue over Feed price was $7.87, $0.13 below his floor. He received a credit to his account with his December milk check.

case study chart 2

John received $260 total in last quarter of 2015.

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The Math behind Settlements
The Final ROF was calculated with this formula: Amount Below Floor – Option Price * Quantity 
The monthly payout was calculated with this formula: Final ROF Call + Final ROF Put
case study chart 2

By planning ahead and hedging in April, John was able to protect his margins when the markets dropped in December. It is easier to place a favorable trade when looking at least six months into the future.

 

Revenue over Feed Case Study: Hedging before Markets Drop

 

In May of 2015 George Miller looked at the milk and feed future markets. He decided to hedge 2000 cwt per month, the production of about 100 cows, for January, February, and March of 2016 at an $8 floor and a $11 ceiling. He placed his trade with no upfront cost.

At the option price of $.60 for the floor and $.60 for the ceiling putting his trade at even money. Revenue over Feed price was below the $8 floor all three months of the quarter which means George was paid. In January, the markets were $.52 below his floor, in February, $.64 below, and in March, $.46 below his floor. He received a monthly credit to his account.

case study chart

George received a total of $3080 in the first quarter of 2016.

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The Math behind Settlements

 

The Final ROF was calculated with this formula: Amount Below Floor – Option Price * Quantity 
The monthly payout was calculated with this formula: Final ROF Call + Final ROF Put
case study table

By planning ahead and hedging in May, George was able to protect his margins when the markets dropped in the first quarter of 2016. It is easier to place a favorable trade when looking at least six months into the future.

Revenue over Feed Lite Case Study: Hedging before Markets Drop

In April of 2015 Adam Trask looked at the milk and feed future markets using the Revenue over Feed Lite program because he grows his own forages and silage. He decided to hedge 1000 cwt per month, the production of about 100 cows, for January, February, and March of 2016 at an $11 floor and a $14 ceiling. He placed his trade with no upfront cost. At the option price of $.75 for the floor and $.75 for the ceiling putting his trade at even money.

Revenue over Feed Lite price was below the $8 floor all three months of the quarter which means Adam was paid. In January, the markets were $.93 below his floor, in February, $.92 below, and in March, $.88 below his floor. He received a monthly credit to his account.

case study chart 2

Adam received a total of $2730 in the first quarter of 2016

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The Math behind Settlements

 

The Final ROF was calculated with this formula: Amount Below Floor – Option Price * Quantity 
The monthly payout was calculated with this formula: Final ROF Call + Final ROF Put
case study chart 3

By planning ahead and hedging in May, George was able to protect his margins when the markets dropped in the first quarter of 2016. It is easier to place a favorable trade when looking at least six months into the future.