Hedging The Inflation of Energy Costs In Agricultural Production

Casey Douglass

• Casey studied at the U of A, then farmed until 1990
• During the '80's, Casey also worked with a grain company in account management, product design and marketing, including teaching producers hedging.
• Casey spent over 5 years in Russia.  During this time he analyzed their agri-business; obtained financing; imported western machinery; designed, launched and managed a pilot farm and custom work project in 4 provinces.
• His agency "Invest to Grow Ltd" serves in the investement business throughout Western Canada.

Hedging The Inflation of Energy Costs In Agricultural Production

Today, in the agricultural business, you know how to hedge your production via forward price contracts and futures markets, but what about stabilizing inputs?  During the last few years, we're seen a run on oil price up to $140/bbl before dropping to the $30.00 range.  You've experienced doubling of fuel price increases on fertilizers.

What if there was a long-term way to hedge these costs of input costs?

Making use of the oil and gas futures markets means opening accounts, maintaining margin accounts and picking roll-over points.

Anyone excited about stepping into this?....  Didn't think so.

Buying a producing oil well might not be any easier.

Is there a package that could work? ...  I think so, but non-traditional hedging. 

Consider it a combination of:

• long-term hedging strategy
• vertical integration, downwards into inputs instead of upwards or into processing and marketing
• diversification of portfolio

This is one package which is:

• liquid
• has real oil and gas assets in the ground being extracted
• provides a cash flow
• increases in equity
• is tax efficient