A trader sells futures contracts in the futures market first, and the variety, quantity and delivery month of the contracts sold are almost the same as those sold in the spot market later. If the spot market price really falls or rises in the future, he can make physical delivery, or sell the spot in the spot market and buy futures contracts of the same variety, quantity and delivery month in the futures market for hedging and liquidation.
Theoretically, because futures prices and spot prices have the same direction and convergence. Therefore, the gap between the futures market price and the spot market price will not be great. But when the price falls, if the goods are delivered in kind, the enterprise can sell its products at the determined target price; If he doesn't make physical delivery, he buys futures contracts with the same variety, quantity and delivery month in the futures market, and makes a profit in the futures market, while the spot is sold at a price lower than the determined target price in the spot market. But in the final comprehensive calculation, the profit in the futures market plus the sales income in the futures spot market, the final income and profit are consistent with the determined income and profit. On the other hand, physical delivery can also be carried out when the price rises, so the target price and profit target remain unchanged. If you sell the spot in the spot market and close the futures contract in the futures market, you will lose money in the futures market, but the spot will be sold at a market price higher than the established target price. If you calculate the profits of the futures and spot markets together, the final target income and profit target will remain unchanged. This is how futures can be hedged.
Due to many factors, futures market prices and spot market prices are often not completely consistent. In the delivery month, it is necessary to carry out physical delivery or buy hedging liquidation, and it is necessary to calculate whether the profit of physical delivery is large or the profit of hedging liquidation is large. At this time, it is necessary to consider all kinds of fees and taxes paid for physical delivery.
For the farm selling hedging, in the delivery month, whether to make physical delivery or buy hedging positions and sell the spot in the spot market. Mainly consider the following factors: selling futures contract price, futures market price and spot market price near delivery date, agricultural specialty tax and other taxes and fees.
When making physical delivery, the net income of the farm is: futures contract price-various transaction costs-agricultural specialty tax (this is for the farm, so the value-added tax is not considered, and it should also be considered if it is an enterprise that needs to pay value-added tax).
When purchasing a hedging position, the net income of the farm is: profit and loss in the futures market+sales amount in the spot market-agricultural specialty tax (value-added tax is also not considered).