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Cross Hedge

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cross hedge
In futures trading, an offsetting position in a futures contract for an existing position in a related commodity in the cash market. An example would be the sale of a contract on wheat for delivery in two months in order to offset an existing cash position in oats.

Cross Hedge
An investment strategy that involves taking a position on a commodity followed by an equal but opposite futures position on a different commodity with similar price movements. Because the price movements of the two commodities should be closely correlated, a negative movement on the present commodity should be offset by a positive movement on the opposite futures position, and vice versa. Cross hedging is often used in markets where there is no viable futures market for the presently-owned commodity. See also: Commercial trader.


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We note for some brokerage clients that did get into the natural gas market as a cross hedge for nitrogen usage, the market is starting to respond to upside price influence.
NATURAL GAS: Earlier this year we spoke about buying natural gas as a cross hedge to protect nitrogen cost.
 
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