As a knowledgeable professor in finance, it is important to understand the concept of hedging. This refers to an individual or company who owns or plans to own a cash commodity, such as corn, soybeans, wheat, or U.S. Treasury bonds, and is concerned about potential changes in its cost before buying or selling it in the cash market. In order to protect against price fluctuations, a hedger will purchase or sell futures contracts for the same or similar commodity. These positions are later offset by selling or purchasing futures contracts of the same quantity and type as the initial transaction. This allows for a sense of security in the volatile market of cash commodities.
