Hedging: The Farm-Saving Strategy Everyone Knows, But Few Get Right

January 20, 2025

By Adam Hocker, Founder of Future Profits Consulting

If you’re like most farmers, you’ve experienced that stomach-turning anxiety when market prices drop. One day, you’re feeling confident—prices are up, and you’re on track to have a solid season. But the next day, the market tanks, and all of a sudden, your hard-earned profits vanish.

Well, you’re not alone. This is a rollercoaster of emotions that all farmers and producers often face.

You work day in and day out, only to see everything wiped out by forces beyond your control. That sense of helplessness is enough to make anyone question whether farming is a sustainable business.

But here’s the thing: There’s a strategy that can protect your profits, even regardless of where the market goes. A strategy that’s been around for decades, but one that many farmers still hesitate to use. It’s called hedging, and while everyone’s heard of it, few really know how to do it right.

The Volatility Challenge: Why Farmers Feel Powerless

Back in 2020, the farming industry faced an unprecedented challenge—COVID-19 disrupted the supply chain in ways we’d never seen. Prices and processing capacity plummeted, and suddenly, commodities across the board were caught in a cycle of uncertainty. Processors halted, supply backed up, and the usual flow from farm to table came to a grinding halt. Unlike the swine flu in 2008, which hit the pork market particularly hard, the pandemic’s impact was sweeping, affecting not just livestock but all major commodities.

No matter how hard we worked, it seemed like the market was working against us. Costs were rising, prices were unpredictable, and profitability was more like a roll of the dice than a sure thing.
It was the kind of turmoil that forces you to question everything.

What Is Hedging, and Why Should Farmers Care?

Hedging isn’t as complicated or risky as many people think. At its core, hedging is simply a way to protect your profits by locking in prices ahead of time. Think of it like insurance for your bottom line. Just as you wouldn’t drive your truck or tractor without insurance, you shouldn’t leave your profits exposed to the whims of the market.

Here’s how it works: Let’s say you know your breakeven cost for growing a bushel of corn is $4.25. If the futures price for corn is $4.45, you could lock in that price using a futures contract, ensuring you’ll get at least $4.45 less basis, no matter what happens in the market later. This way, you’ve guaranteed a $0.20/bushel profit less basis.

Hedging isn’t about trying to guess where the market will go next—it’s about protecting yourself from the downside. You give up the chance to hit a home run if prices skyrocket, but you also avoid striking out if prices tank. It’s about consistent, reliable profits, not gambling on market timing.

How Hedging Protected Our Farm During a Market Crash

We have undoubtedly faced many unforeseen events – swine flu, pandemics, supply chain disruptions. We will face more. However, like in 2009 and 2020, with a disciplined strategy, we could avoid major losses and make it through to the other side, without too many “financial” bumps and bruises.

Through hedging and an intentional risk management strategy, we had already locked in our prices months earlier. I’ll never forget that time. While many farmers were scrambling and panicking, we were able to keep calm and focus on what we could control.

We had locked in prices when margins were good, and when the market bottomed out, our profits were protected, and stayed intact.

This was another example which solidified our APS approach to risk management. I realized that hedging wasn’t just a safety net—it was a tool that could allow us to grow. Over the next several years, we scaled the operation 10x. Hedging played a big role in making that possible, because we were able to protect our profits and make smart, calculated decisions about when to expand.

Why Do So Many Farmers Avoid Hedging?

With all the benefits hedging offers, you’d think every farmer would be doing it. But that’s not the case. A lot of farmers avoid hedging, and I think there are a few key reasons why.

“Hedging Is Too Complicated.”

I get it—hedging sounds like it belongs on Wall Street, not on a farm or in a hog barn. But the truth is, once you get started, it’s pretty straightforward. You don’t need a finance degree or a background in commodities trading to know what is right for your business. It’s just a matter of understanding your costs, setting a target price, and locking in that price using contracts.

When we first started, I didn’t hedge our entire production. We began by locking in prices for a small portion of our hogs. As we got more comfortable with the process, we expanded. It was a learning curve, but it wasn’t nearly as complicated as some may fear.

“Hedging Is Risky.”

This is probably the most common misconception. The truth is, not hedging is riskier. When you leave your profits exposed to the market, you’re gambling that prices will stay high. But we all know how that usually plays out. Hedging allows you to take control of that risk. You might not make as much during a bull market, but you’ll avoid the huge losses when the market takes a dive.

For us, hedging brought consistency. We weren’t constantly riding the highs and lows of the market anymore. We knew what our profits would be, and that gave us the confidence to grow without taking unnecessary risks.

“What If I Miss a Market Spike?”

It’s tempting to hold out for that big payday, waiting for prices to hit their peak. But the reality is, that by locking in a solid price early on, you’re securing your profits. You might miss the highest high, but more importantly, you avoid the lowest the bottom third of prices.

The big takeaway here is that hedging isn’t about hitting home runs. It’s about getting on base and scoring game after game. Over time, that consistency adds up, creating a less stressful operation, versus one that struggles year after year.

How to Get Started with Hedging—Without the Overwhelm

The good news is, you don’t have to dive in headfirst. You can ease into it, build confidence, and grow from there. The best are intentional, and build momentum over time.

Here’s how to get started:

Know Your Costs

Before you can lock in prices, you need to know your breakeven point (the minimum price you need to cover all your costs and make a profit). This includes inputs, labor, fuel, and overhead. Start by calculating your cost of production.

For us, it all started with a simple margin calculator. I tracked every input cost—feed, labor, utilities, and repairs—and compared that to the market price. This helped me see exactly what price we needed to hit to make money. Without that data, we were flying blind.

Set Your Target Price

Once you know your breakeven cost, set a target price that gives you a healthy, but realistic, margin. This doesn’t have to be the highest price you’ve ever seen—just one that guarantees steady profits. For us, it was never about hitting the market’s peak. It was about locking in a price that allowed us to keep growing, even when the market took a hit.

Start Small with Forward Contracts

You don’t have to hedge your entire operation on day one. Start by locking in prices for a portion of your crop or livestock. Forward contracts are a great way to begin—you agree to sell part of your production at a set price with a processor, securing your profits ahead of time.

We started by hedging a small percentage of our hogs, and as we saw the consistent returns, we gradually expanded. Expanding the strategy and making a huge difference in long-term profitability.

Engage with a reputable Risk Management Consultant

To get started, I would recommend visiting with a consultant that specializes in agricultural risk management. They can help explain the process and ensure you’re making the right moves for your operation.

Hedging Creates Peace of Mind for Farmers

One of the biggest benefits of hedging isn’t even financial—it’s emotional. Farming is stressful enough without having to constantly worry about where the market will go next. By protecting your prices, you take that stress off the table. You can focus on what you do best—running your farm and raising your family—without second-guessing every market fluctuation.

There was a peace of mind that came with hedging that was priceless. I slept better at night knowing that we had secured our profits. We weren’t constantly chasing market highs or worrying about price drops. Instead, we were able to focus on what really mattered—growing our operation.

Start Protecting Your Farm with a Disciplined Strategy

If there’s one thing I’ve learned, it’s that leaving your farm’s success up to chance is stressful. Thinking with your gut is not a long-term strategy. Market prices will always fluctuate, but that doesn’t mean your profits have to.

Hedging gave us the control to secure our profits, grow our farm, and reduce the stress of unpredictable markets. It’s not about predicting the future, but protecting your future.

Hedging is not something to fear. It is an intentional strategy to manage profitability and consistency in your operation better. Start small, be intentional, build your confidence, stay disciplined, and watch how protecting your profits transforms your operation.

Here is a Quick Hedging Checklist:

• Calculate your input costs and breakeven point.
• Set your target profit margin.
• Explore forward contracts or futures with an established risk management consultant.
• Lock in prices for a portion of your crop or livestock.
• Review your strategy each season to ensure you’re maximizing protection.

Adam Hocker is the founder of Future Profits Consulting and the creator of the Agricultural Profit System (APS)TM. A dedicated advocate for the agricultural community, Adam helps farmers strengthen their profitability by merging emotional awareness with strategic decision-making frameworks.