The operation of market economy has obvious periodicity. Because the short-term output elasticity of commodities is small, commodity futures prices with commodities as the target have strong pro-cyclical characteristics. That is, when the economy grows, the increase of commodity prices is greater than the economic growth, and when the economy declines, the decline of commodity prices is also greater than that during the economic recession. Therefore, from the perspective of price fluctuation, the periodicity of commodity futures prices is stronger than that of the economy. The economic cycle can be roughly divided into two stages: the stage with clear trend and the stage with uncertain trend. There are two kinds of trend uncertainty: the real trend reversal stage and the intermittent stage in the middle of the trend. Among the types of trend reversal stage, what needs special emphasis is an extreme market type, that is, the whole economy presents systematic panic and is close to collapse. The global financial crisis after the bankruptcy of Lehman Brothers is a typical example of this extreme market type. Under the obvious unilateral upward trend, enterprises that use the futures market to buy and hedge tend to hedge with a higher proportion of all the spot, while enterprises that use the futures market to sell and hedge tend to hedge with a smaller proportion. When the trend is uncertain, companies that buy or sell hedging will increase the spot hedging ratio to reduce the risk exposure in the uncertain market. Wait until the trend is clear, and then readjust the spot hedging ratio. Under the extreme market conditions, the possibility of concentrated outbreak of various risks in the production and operation of enterprises is greatly enhanced, but the original risk management tools of enterprises may fail. In view of the security of the futures market, enterprises will rely more on the hedging function of the futures market to hedge the price risk than before, and then reduce the possibility of other risks in the production and operation of enterprises by controlling the price risk. That is, under extreme market conditions, enterprises have the strongest demand for hedging and are willing to pay higher prices for hedging. Enterprises use predictable, controllable and possibly largest losses to hedge the losses that may be unbearable. For enterprises, hedging at this time is not simply to hedge the price risk, but to hedge the risk of enterprise shutdown and bankruptcy in a systematic and harsh environment.
Second, the definition of hedging
To define hedging from the perspective of enterprise production and operation, the following two constraints must be met: first, the spot position and the net futures position of the enterprise must be in opposite directions; Second, from the point of view of hedging spot risk, the net futures position of an enterprise cannot exceed the whole production capacity or business plan of the enterprise. If the future position of an enterprise violates either of these two constraints, even from the perspective of enterprise production and operation, it is no longer considered as hedging, but as a matter of fact speculation. Under the condition that these two constraints are always met, an enterprise, starting from its production and operation objectives, determines the proportion of all its cash to be hedged according to its own management level, financial strength, risk preference and tolerance, and forecasts the trend of future futures prices and spot prices, and implements specific hedging operations to hedge risks. In a complete business cycle, enterprises will adjust the number of hedged items according to the changes in the market and the latest development of enterprise management, and flexibly implement specific hedging operations. As long as the hedged futures net position does not violate these two constraints, any specific futures operation of enterprises in the futures market should be regarded as hedging behavior, not speculation. As far as different enterprise types are concerned, the focus of hedging is different. The continuity of production is one of the key business objectives of raw material production enterprises facing continuous production. Because of the high one-time cost of stopping production or changing production plan, when the market price is close to its cost, they often hedge a higher proportion or even all production plans to ensure the continuity of production. However, when the market price is much higher than their cost line and the continuity of production is fully guaranteed, enterprises often follow their production plans or all production plans to obtain the highest possible opportunity profit. Therefore, with the change of market conditions, the hedging bank of such enterprises will change in the amount or proportion of hedging. For trading enterprises and production enterprises oriented to earn processing fees, the purpose of hedging is to lock in the trade spread and processing fees. Without considering the other party's breach of contract, the quantity determined in the trade contract and processing contract is the hedging quantity, which is basically unaffected by market fluctuations. Therefore, the hedging quantity is often very clear and rarely changes during the validity period of the contract, and the hedging reflects the dynamic characteristics.
Third, the misunderstanding of hedging.
The first misunderstanding is that hedging is only an enterprise's investment in the futures market, and the profit and loss of future positions determine the performance of hedging. In fact, there is no spot demand. Simply talking about futures is speculation, and hedging must require a spot background. The second misunderstanding is that the total profit and loss of futures and spot liquidation generated by hedging must be profitable. This view ignores that enterprises sometimes hedge to avoid losses that they cannot afford. At this time, hedging is equivalent to buying an insurance at a price they can afford, and the price paid by this insurance is not based on whether the enterprise can make a profit, but on whether the enterprise can bear or continue to operate. At this time, reducing losses is profit for enterprises. The third misunderstanding is that the hedging behavior of enterprises is determined by the hedging standards in accounting standards. If the enterprise implements hedging in strict accordance with the current accounting standards, instead of going out to better achieve its business objectives and carrying out hedging related policies and operations, it is tantamount to putting the enterprise's better realization of its business objectives under accounting treatment.