What counter seasonal hedging is revealing about the motives of hedging

Like their North American colleagues, also South American grain merchants prefer to hedge their corn and soybean forward contracts at the CBoT in the United States. This is an interesting fact because it contradicts with the common belief that grain merchants always prefer a close hedge at a local futures exchange. In this paper, we show that the South American grain merchants prefer a loose hedge at the CBoT because of the counter seasonal price pattern in North and South America. The latter provides them with a unique hedging opportunity: Thanks to the counter seasonal price pattern, the South American grain merchants cannot only buy grain at more favorable conditions, but also resell it at more favorable conditions. Our discussion of counter seasonal hedging reconfirms that grain merchants are at first basis traders that seek to maximize their profit margins; the minimization of price risk only comes second. Acknowledgement :