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Managing price risk well comes down to your speed and accuracy. How quickly can you lock in a position—such as a hedge—before the market moves? And is that position exactly the one you want?
These questions are obvious to the point where you, as a grain merchandiser or originator, probably never think of them so literally. But in creating a digital tool to automate the hedging process—which we simply call Hedge Automation — these are the two fundamental questions we developed around.
Hedge Automation is a feature I’ve been looking forward to releasing for a long time. It allows you to stay efficient with existing trading strategies and commodity relationships when balancing your position while avoiding hedge slippage and data entry mistakes. This reduces risk and creates more time for your team to focus on other, high value activities when using the Market+ software.
What exactly are we offering? Before I get into how Hedge Automation works, I am going to be clear about what Hedge Automation is not: the feature does not guarantee any particular outcome when placing a futures order. It does not recommend a position. Indigo is not a futures commission merchant, and is not providing trading advice.
Hedge Automation helps you digitize your exact hedging strategy, based on trading preferences you set, as soon as a contract is created. It keeps your employees from needing to call into the hedge desk after a transaction is complete and instead keeps them moving to the next sale.
Who’s it for? I know plenty of grain buyers who’d tell me at this point, “My hedging process is already efficient,” or even, “We have some hedge automation already in place.” But I know many other grain buyers who struggle with moving fast enough to place a certain trade, or have a smaller team they’d like to keep nimble and on the phone with farmers rather than on the phone placing futures orders. Since Hedge Automation is an add-on feature for Market+ Merchandise, Indigo’s digital merchandising application, it can be brought on immediately by those buyers who need it, and left on deck by those buyers who don’t.
What does it do? When creating a specific cash, hedge-to-arrive, or basis contract in Market+ Merchandise, grain buyers can have Hedge Automation turned on. Once the contract is submitted, that means these nine steps happen simultaneously:
- Current market level retrieved
- Bushels are purchased
- The futures reference month is set
- Determine net futures position
- Futures order is placed
- Futures fill is received
- Cash contract entered in ERP
- Futures entered in ERP
How do I set it up? You can configure your order type, order duration, and tail management threshold percentage with Hedge Automation. The futures orders you place with this feature can then be connected automatically to your existing broker, preserving your existing relationships.
A view of the Hedge dashboard within Market+ Merchandise
How do I check on my hedges? To confirm your hedges are successful and see all of the hedges you’ve placed, there is a specific, easily accessible dashboard within Merchandise to review your position. There, you can find a topline summary with your exposure displayed as priced contracts versus futures orders, and a complete list of all contracts that benefited from the efficiency of Hedge Automation. (Of course, since the buyer’s futures commission merchant remains the source of truth for your book of business, buyers are encouraged to confirm orders directly with them.)
When can I use this tool? Hedge Automation works around the clock, covering both evening and day trading hours. If a grain contract is created when the market is closed, Merchandise queues the futures order up for when the market re-opens. All scenarios are covered.
Want to learn more? Complete with real-time futures, cash, and basis bids as well as competitive analysis, Merchandise can streamline the merchandising and origination process. With that extra time, buyers can cover more ground, buy more grain, and—in turn—generate more revenue. I am so excited by this release of Hedge Automation, and hope you will get in touch if ready to learn more.
Updated: March 17, 2023