Hedging techniques in commodity risk management

The article focuses on selected aspects of risk management in agricultural business with the aim to discuss and compare different hedging methods which are relevant for managing the commodity risks associated with agricultural production. The article provides a broader context for understanding the risks and possible responses to it and analyses four basic hedging strategies – commodity futures, forward contracts, options and option strategies. The substance, advantages and disadvantages of each hedging technique are pointed out and compared to each other with the conclusion that there is always some kind of trade-off between the advantages and disadvantages of the particular strategies. The farmers shall, therefore, consider both all aspects of the relevant strategies and their expectations, before they make the final decision which instruments to use.