SAN MATEO, Calif. (HedgeWorld.com)--Folks in Illinois with a drought-induced pessimistic outlook about corn and soybean production can now take positions based on their views via HedgeStreet Inc.
HedgeStreet now offers so-called Hedgelets on U.S. Department of Agriculture corn and soybean production forecasts. In this case, the Hedgelets are "yes" or "no" contracts based on the estimated corn and soybean production forecasts released by the USDA's National Agricultural Statistical Service.
According to HedgeStreet officials, these reports are "carefully monitored by commodity futures traders and have a direct impact on prices." They come out monthly from August through November and again in January.
Hedgelets are contracts that allow traders to take positions relative to some outcome. For instance, Hedgelets on corn and soybean production would let buyers say either yes, the corn/soybean production forecast number will exceed some threshold, or no, it won't. The payout on the outcome is fixed, and traders can't lose more than they bet.
"Corn and soybeans are highly sought-after commodities used in thousands of food items and industrial applications," said John Nafeh, HedgeStreet's chief executive, in a statement. "By trading these new Hedgelets, HedgeStreet members can offset risks associated with rising and/or fluctuating corn and soybean prices or speculate on the direction and degree production forecasts will change."
Jigsaw Commodities LLC, Minneapolis, will act as a market maker for the Hedgelets. Jigsaw's senior trader and owner, Peter Kordell, said in a statement that his firm believes the contracts will benefit its customers and the agribusiness community in general, since agricultural production fluctuates based on weather, disease and other factors. "A single report can completely reverse the price trend of corn and soybeans for the rest of the season," Mr. Kordell said. "These new Hedgelets provide a new tool to directly hedge the risk associated with the specific report--rather than the traditional ways to hedge commodity risk which have so many other pricing factors to consider."
HedgeStreet is regulated by the Commodity Futures Trading Commission. Since it acts as its own exchange and clearing house, its size depends on the number of people willing to take offsetting positions. In an effort to get more people to do so, HedgeStreet recently lowered the minimum deposit amount to US$100 from US$500, and offered 30 days free trading to new members.
The minimum trade order is US$10, plus minimal settlement costs for contracts held until expiration.
Contact Bob Keane with questions or comments at: firstname.lastname@example.org.