Cross Hedge
Categories: Derivatives, Trading
When you cross hedge, you take a position on a commodity, such as corn, and then immediately take an equal but opposite futures position on a different commodity, such as wheat.
The second commodity should have similar price movements. So if the corn price tanks, you can hopefully still make money on the wheat.
You’re just making a directional bet that, if the whole agriculture market tanks, because corn is a key source of sugar (i.e. a "must have" for sugar junkies and future diabetics of America), that corn will tank less than wheat which is just a "nice to have." Like...who really needs Cream of Wheat anyway? And if they do need it, don’t they load it up with corn-based sugars so that it’s...digestible?