Because of grain sorghum's close price relationship to corn, producers can use corn futures to manage grain sorghum price risk. Pay close attention to the contract month. Project the date of the anticipated cash market transaction and select the futures contract month that best corresponds to that date. For example, an expected September corn sale would be hedged against December CBOT corn futures, since there are no contracts available for October or November. Understand basis and develop a basis forecast.
Basis is the relationship between local cash prices and futures prices.
Failure to account for basis and basis risk could ensure not meeting your selling hedge pricing goals. Be disciplined and hold the hedge until cash commodity sales or the hedge is offset by another price risk management tool. Producers should only hedge prices that are acceptable to them. Once a hedge position is initiated, the hedge should not be removed before the cash sale date without careful consideration of the risk exposure. Bill's 10-year average production level and the minimum production for the past five years.