Long Hedging

What this video covers

• What an anticipatory hedge is, and why it is just the forward-looking name for a long hedge rather than a separate strategy
• Why a long hedger does not yet own the commodity, and how their cash position is short or anticipated rather than long the physical
• Which businesses become long hedgers in the real world: processors, manufacturers, and exporters who consume commodities as raw inputs
• How buying futures now creates a ceiling on cost, with the futures gain absorbing the extra cash cost if prices rise before purchase
• The explicit trade-off every hedger accepts: certainty in, windfall out, because a price decline produces cheaper physical that is offset by a futures loss
• The side-by-side mirror image between short hedgers (long the physical, fear falling prices, sell futures) and long hedgers (short anticipated position, fear rising prices, buy futures)
• The golden rule to match futures action to future cash transaction: if you will buy cash later, you buy futures now