Positions in the local market
When you want to figure out what position you are in your local
market, ask yourself this question:
If the price in the local market drops, do I benefit or do I lose?
If you own (or are producing) the commodity, then a dro
Local vs. Futures Markets
In the basic example of participating in futures markets, we assumed
that the participant was a speculator.
Typically, speculators do not have the actual commodity and
participate in futures markets for one reason: profit.
Chapter 11: Hedging Risk using Futures Markets
Markets can be very risky.
So why use them?
For many agricultural producers, futures markets can be important
tools for reducing risk.
It is important, however, to understand how futures mark
In analyzing how to hedge price risk, we assumed that at the time
that a futures contract expires, the price in the local and futures
markets is exactly the same.
This is known as perfect convergence of prices.
Additional problems market participation
Consider the following scenarios:
1. You believe that the price of corn will rise in September to
$4.50/bu. It is currently July and the price of futures contracts is
2. The USDA comes out with a report t
Introduction to Futures Contracts
Futures contract provide a very structured and standardized method
for buyers and sellers to determine the terms of an exchange. Each
futures contract is exactly the same except for the price of exchange
established by t
Graphing Trade with XR
To properly model trade with exchange rates using supply and
demand diagrams, it is necessary to use a four-panel approach.
That is, we need to explicitly account for the excess supply (or
excess demand) curves being altered becau
Chapter 10:Introduction to Agricultural Futures Markets
Futures markets for commodities have been an important method for
agricultural producers to hedge revenue risk, which can be very high.
Not only do agricultural producers face the fluct
Chapter 13: Futures Market Practice
We saw that if you take on pure price risk (decide to sell at the local
price without a futures hedge), you can lose quite a bit of money if the
price moves against you.
So, it is better to hedge by taking
Mechanics of a Futures Market
The day-to-day operations of a futures market are described below:
1. Times vary, but usually markets are open between 9 a.m.
and 2 p.m.
2. Buying and selling occurs simultaneously.