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About The Battalion. (College Station, Tex.) 1893-current | View Entire Issue (Dec. 8, 1980)
Local THE BATTALION MONDAY, DECEMBER 8, 1980 Page 9 ommodities a tricky market May traders never see what they trade J en 1 in k| By BARBIE WOELFEL - re SOingliT Battalion Reporter ty funds gilt's undiscovered by many and Bred by those who don’t under- ond issue,nljHd it. But it’s closely watched and Hion proposj w 'th by those who are experts, cd for Sira Hbis fascinating institution which e, was self lias increased in popularity has made 1977. Issue) many “hedgers” and "speculators” udedaiu pbuo. The system is known as the te proposals commodity futures market. ; of eacli pJ|P ie futures market is the buying were held! an ^ se Hi n 8 °f contracts to be deli- iform thpi p t( l at a future time, usually eight low voter it to 10 months away from the purchase lich wasMj Jte. All contracts are the same in e general e H r( l s to quantity and quality but ssiblereasi l’ avt; different prices and dates of de- wasreject^B r y> sa ‘d the Commodity Re- mrch Bureau in Understanding the 1 omisli, tli Commodity Futures Market. R‘nt in Bni!» However, the average trader is tmte theirtl rarely interested in taking or making oc.withlittleJelivery. Almost invariably, he Res out his position in futures de- Rry contracts before they mature,” i the moneyi<Hd the Commodity Research re had toi fjpreau. Pood condijHlontracts of wheat, grain (corn), pair worts,' oats and soybeans are traded in Hhels. Cotton and beef are traded I Hounds, said the Chicago Mercan- e k “ 10M JH Exchange in Commodity Mar- kets and Futures Prices. for street repi th priorities ae allocated l ■he commodity futures market “is a simple affair. It is an organized Hket like the stock market, ... but 'l' 1 as - Sl11 Htuates more widely because it is : inorc sensitive to a wider range of 1 economic factors,” said the Com- irdpetitionf R eS earch Bureau, ere is ^‘ R'hese sharp price changes arc due ug tne steHany factors such as weather, in- wls arc al anc j diseases which may affect presidcii: ^ g r0 wing season of the crop or the from the : t 'H na ]' s feeding conditions. Other will becor&iR ons f or p r i ce changes include the igcihcrcliBiaHiand for food along with interna- ial tension. There are three types of traders I Ithe futures market,” said Bradley □ nriuson, cash grain merchant for Igil Inc., the largest grain dealer Ithe futures market. “There are ommercial traders who are domin- fted by big grain companies, com- • V nission and brokerage houses such as Merrill Lynch who charge fees for him Winebott re where, he Texas \U ■sity-yaidd y of the state The commodity futures market “is a simple affair. It is an organized market like the stock but fluctu- lorepromNjtes more widely be- ;e, Silver \MW ihasSourfi. d suspicions cause it is more sensitive •lb to a wider range of eco- lakeless, tel . r x „ M1 i,,sS|, nilmc factors. ingtown, I bottle said t, . ~~ icir services and local speculators c Citi- P are usually businessmen trading liereiwtt^K^ commercial «d.„ are after spri« | linated b >' the bi 8 five ’ grain wns namedf>PP a " ies which , include ^argil ^1., Continential grain, Louis f itowiiin : py fus > Bunge and Garnac. These 1 . j j must “hedge” — a protective t , 1511 Icedure designed to minimize () . 11 Is commodity and marketing and pro- u ’ ir0 *singlosses that are due to adverse ie fluctuations, in order to stay in isiness and make a profit, said Jnson. Ilndividual farmers and grain ele- itnr operators buy hedging con- tts through commission brokers I order to minimize price risks of i cash market of which they nor- tlly sell their commodities. [According to Dr. Clive R. Har- D, professor in the agricultural eco nomics department at Texas A&M Lhiiversity, the perfect hedge for two contracts of wheat (one contract equals 5,000 bushels) for example, allows the cash and futures market profits and losses to break even. The following example show how this “perfect hedge” is effective in covering price risk, said Harston. Cash Market — March 1 — farmer plants corn and expects to receive $2.60/bushel Oct. 1 — farmer sells 10,000 bushels at $2.40/bushel after harvest and three months of storage Loss of. 20/bushel Futures Market — March 1 — farmer sells corn fu tures for November delivery at $3.00/bushel for 10,000 bushels Oct. 1 — farmer buys back November futures contract at $2.80/ bushel Gain of .20/bushel These types of contracts are used to cover the risk of prices rising and falling on the cash market which affect the intakes of profits drastically for large farmers who farm thousands of acres. Of course, the futures market does not always produce a gain for the hedger. The futures price may go up, which will cause a loss to the hedger: therefore, he must put up a margin which is cash or collateral posted to the broker as a guarantee of of fulfillment of a futures contract which is not a part of the payment or purchase, said the Commodity Re search Buraeu. The speculating type of trader is usually a keen businessman who “anticipates the market rising and falling by closely watching what the farmers are doing. If they begin to expand production, then I speculate that the price will go down because there will he an excess supply, and if a cutback in production is seen, I expect an increase in price because the supply will tend to decrease,” said Jimmy Kieschnick of Wood ridge, III. “Illinois, Iowa, and other sur rounding states are the garden spot of the United States, and whatever these farmers decide to do, will usually alter the supply and demand for their products,” Kieschnick said. Kieschnick, a speculator himself, has no direct connection with any production of a commodity, but buys contracts when he thinks prices are too low and sells them when he thinks prices are too high. Several time, Kieschnick has made a large sum of money by his successful spe culating. Most agricultural products are traded on the Chicago Board of Trade. Brokerage firms own a mem bership on the board in order to par ticipate. A hedger would trade on the board through one of these brok erage firms. “At the Chicago Board of Trade, When Is Your Buying No Secret' At All? WHEN OVER 30,000 PEOPLE READ IT IN THE BATTALION For the biggest selections of anything you could pos sibly want to buy.. . . read our classifieds. You're bound to find it! 845-2611 MEN-WOMEN You may even get your old rank back. If you've been out of the Service less than 30 months and join the Army Reserve, you may get your old rank back Pay in the Army Reserve is better than ever. For in stance. a staff sergeant with six years service now pulls down over $1400 a year (before deductions) That's for putting in only 16 hours a month and two weeks Annual Training. You'll continue to build points toward retirement In addition, you'll get that old feeling of belong ing back. Remember? Check openings. See if you qualify Call Army Reserve Opportunities SFC Daniel Hagedorn 1679 Briarcrest, Bryan Recruiting Station Phone: 822-5713 Part of What You Earn is Pride. An I qu.il Oppwtunilv i mployri there are pits which are designated areas for certain agricultural pro ducts such as grain, wheat, cotton, soybeans, oats and feeder cattle, ‘Ton must know what you are dealing with and you must have money to back up your losses be fore you ever attempt to deal in the futures mar ket. Never play around with your grocery money or you’ll lose ev erything. ” where buyers and sellers are scream ing out prices in order to find a buyer or seller for his price. Once the buyer or seller has found another to make the trade of contracts, a simple nod of the head completes the deal,” Johnson said. The brokerage firm then calls the hedger reporting what his specific contract states in regards to price and delivery date. A hedger can do this in a matter of a few hours. By dealing with imaginary con tracts, amateurs are able to learn about the futures market by assum ing that a contract was bought, said Barry Stevens, a student a Texas A&M from Lubbock. When Stevens decides to buy an imaginary contract, he calls his father, Mike Stevens, a broker for Merrill Lynch in Lubbock, and sets the amount of contracts and the price he wishes to buy them at. He closely follows the price changes in the fu tures market as well as the cash mar ket to see if he could have covered any price risks. “You must know what you are dealing with and you must have money to back up your losses before you ever attempt to deal in the fu tures market,” Kieschnick said. “Never play around with your groc ery money or you’ll lose everything. ” W V s 4* # - A# ^ 4T# # -«* 4* & % ^ | %v &. # ^ % >> % m # % i® ""”V / "T V; , James W* Claer m HERS 3480684 fBELL ' PH. 775-0200 TEXAS 11177601■iS||ll|*J^^|^l ' •• • - - ' ... - V c . ■' iillli BRAZOS i in Office; 2800 Texas Avem .... , .............. I® . fAYmt mmvut mm a Bank on Brazos Savings. Write checks and earn 5Y4% interest. A Brazos Savings MoneyStore checking account pays you 5 1 /4% interest on the balance in your account. You pay no service charges with a minimum balance of $300. 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