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cross hedge

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Cross Hedge
The act of hedging ones position by taking an offsetting position in another good with similar price movements.

Notes:
Although the two goods are not identical, they are correlated enough to create a hedged position as long as the prices move in the same direction. A good example is cross hedging a crude oil futures contract with a short position in natural gas. Even though these two products are not identical, their price movements are similar enough to use for hedging purposes.


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.

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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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