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Abstract
Excerpts from the Introduction: This circular deals with the subject of hedging, especially as applied to the handling of grain at country elevators. Its purpose is to acquaint readers with the various kinds of protective use to be made of the futures market and to explain some of the fundamentals to be observed in connection with such use. It is believed that a not too technical discussion of hedging, from a nonpartisan standpoint, together with some examples and view points based on the experience of others, may be helpful to managers of elevators and others connected with the country grain business and may serve to dispel some of the more common forms of misunderstanding and error. The material presented herein has been developed with this idea in mind and with a view to accomplishing special purposes, as follows: To describe the various uses to be made of the futures market; To distinguish between the use of futures for hedging purposes and their use for purely speculative purposes; To trace a typical futures transaction through the machinery of the grain exchange and explain the various steps involved in its handling; To show what obligations are assumed in futures transactions and how they may be discharged; To show results actually obtained in a number of typical hedging transactions; and To present certain facts and figures bearing upon the relative advantages of various methods of marketing, together with a consideration of the risk-bearing value of the futures market.