Montana farmer-stockman. [volume] (Great Falls, Mont.) 1947-1993, 1955-10-15
FAIR
:xcellANlC :
by
Cedric Adons

1@7S%xSM !
DID YOU EVER tolk yourself out on q
limb-und suddenly have thot limb
stort to break? Well. thot's the woY |
felt otter I had promised the wife u
cleor explanation of hedging and how
it's used by the buyers and sellers of
] groin. You'll remember. it oil storted
when she asked about groin futures
and it ended with me culling in ON ex-
pert from the Minneapolis Groin Ex-
chmge to clem up the motter.
THAT MADE EVERYTHING fine
and dandy, 4 thought, until my wife
reminded me that she was still wait
ing to hear my version of hedging.
There was no getting out of it, so
| proceeded to explain it-like this. -.
So you wont to know oil about hedg-
/ inqI's I remarked. ''Thot's right" she
soid. Well I says. let's Toxic thot
1 former ond his thousand bushels of
wheof. Remember. the elevator buys
the wheot. and right uwdy he decides
to hedge. so" the wife soYs. "whot
is hedging and why does he wont to?"
And about that time I storted wonder
ing Just how oil this had strted.
Now. look" begon ugoin. this is q
little complicated. omd you'll Just have
10 beor with me while work this out.
You see. the elevator figures th0f by
the time the wheel gets to morket. the
price might hove fluctuoted. so he sells. ]
or maybe he buys thousund bushels
of wheot In the future so he viii hove |
hedge on the wheot fhut he hos in /
the elevator between thof time and the /
time IL gets TO morket." We'll" my /
wife interrupted ogdin. eff the wheot 1
is in the elevator. how com someone in
Minneapolis sell thousond bushels
of something he doesn't even hove ond
moY not get for two or three weeks?"
oh suYs to her. lis thot oil that's
bothering you. As motter of fact
thut bothers me q little. too. Somebody
buys now and thdt moI1es him long
ond If somebody sells now when he
doesn't howe it. thut makes him short.
So. there you have the long end short
of il. hope you're getting this through
your noodle now.
aAnd If you haven't, it doesn't mat
ter anyway, because 4 had a fellow
at the Minneapolis Grain Exchange
write it 0ut-and here it isl
Actuul1Y. Cedric. we talked about
hedging when we explained groin fu-
lures lost month. Remember the e1e-
votor thot bought q thousand bushels
of wheot from the former? He knows
thot by the time that groin gets to NOR
ket the price might have dropped. in
which case he would lose on the trons-
uction. So. instead. when he pdYs the
former Gosh for his wheot Oft todoY's
price. he olso sells futures contract
for thousond bushels ot todoY's price.
Thut me0ns he hos agreed to deliver
Ehousond bushels ot future dote, but /
ut todUYs price. Then when his groin
gets 10 market und is sold OFT the duY's
price he buys back his future olso ot
he dcY's price.
And since the cash grain and futures
prices usually rise and fall together,
ne does not have to be concerned
With price fluctuations. "A loss taken
a the sale of cash grain is offset by
! profit in buying back his futures
contract. So hedging is simply using
he futures market as ssprice insur-
nee" by passing the risk OF chang
ne prices ON to someone willing to
peCulate.
fY wife won't believe it. but thot's
Fhut I wos getting Ground to Gil the
me. She will agree with me, how
vers that the protection the former and
is elevator enjoys by futures fruding
n the Minneapolis Groin Exchange is
pretty helpful thing for oil of us who
spend on the turner's wheut for our
uilY breed.