HOW THE ORANGE JUICE FUTURES MARKET IS USED AND WHAT S DIFFERENT ABOUT IT. Allen Morris. Commodity Futures Markets

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "HOW THE ORANGE JUICE FUTURES MARKET IS USED AND WHAT S DIFFERENT ABOUT IT. Allen Morris. Commodity Futures Markets"

Transcription

1 HOW THE ORANGE JUICE FUTURES MARKET IS USED AND WHAT S DIFFERENT ABOUT IT Allen Morris Commodity Futures Markets A futures contract is an obligation to deliver (if sold) or receive (if bought) a commodity in a future time period at a specific price. The contract also specifies the future month for delivery, the quantity of the commodity and measures of its quality or grade. However, only a small percentage of futures contracts sold end in delivery. By contrast, a cash market is the market created by the physical buying and selling of the commodity. One of the most important aspects of commodity futures markets that enable effective risk management is that prices for futures contracts and cash prices for the physical commodity are highly correlated. This is because of market forces that equalize futures and cash markets. For example, if futures prices are lower than cash prices, when adjustments are made for quality specifications, storage time, delivery location and any other differences, traders will buy the commodity on the lower-priced futures market and sell it on the higher-priced cash market to make a profit. The buying pressure pushes the low futures prices up and the selling pressure pushes the high cash prices down. The reverse trading happens if futures prices are too high relative to cash market prices. This process is called convergence, and is similar to arbitrage, which is buying and selling that equalizes two cash markets for a commodity, net of their cost, location, and/or quality differences. In most futures and spot cash markets, this is efficient enough that the markets equalize without requiring actual delivery on the futures obligation. The difference in cash and futures markets is called the basis, and in efficiently functioning futures markets is mostly the result of differences in quality specifications, storage time, and delivery location. Since futures and cash markets are so closely related to each other, very few futures contracts are actually held until delivery. Most positions are reversed, i.e. purchased contracts are sold and sold contracts are bought, prior to delivery. The cash market is the true means of commercial purchase and sale of product and the futures market is used as a risk hedge against cash market price moves. For example, if in August a producer wishes to sell his commodity in January, he can sell January futures. Then in January when he is physically selling his commodity on the cash market, he can buy back (reverse) his futures contract. Since the futures and cash markets are so closely related, this makes the producer a seller (of cash) and buyer (of futures) during the same time period. Any adverse price moves that might happen to him as a seller are offset by benefits he receives as a buyer, and vice-versa. Since he has established opposite but equal positions as both buyer and seller, he has hedged his price risk, thus the term hedging. A processor who wishes to buy a commodity in some future time period can hedge his risk by 1

2 buying futures contracts for delivery in that time period, similarly making him both a buyer and seller when he sells the futures contracts as he is buying the cash commodity. Hedging is the process that enables the producer and the buyer to establish a forward price for their commodity. Hedging with commodity futures, then, is simply a means to meet a forward commodity price objective. If making a net profit from trading futures plays any role in the trading decision of a cash buyer or seller, he is a speculator, taking the risks that hedgers seek to avoid. Speculators are not concerned with hedging adverse moves in commodity prices. They are simply concerned with buying and selling futures contracts to make a profit. Speculators are critical to the effective functioning of a futures market because they bear the price risk that hedgers seek to avoid, and they help equalize futures and cash markets via arbitrage. Other than shifting risk from hedgers to speculators, another important function of commodity futures markets is price discovery. In this role, futures markets create large competitive markets of buyers and sellers whose collective information about supply and demand conditions for a commodity far exceeds that of any single buyer or seller. This large number of buyers and sellers and their numerous purchase and sale transactions usually provides an objective and competitive valuation of commodities. Overview The Frozen Concentrated Orange Juice Futures Market Note: An NFC futures contract was approved by the exchange in 2006, but it (predictably) died a year later because of lack of liquidity. NFC price risk can be managed using FCOJ futures since both are orange juice. The price difference between the two, mostly storage and shipping costs, simply becomes part of the basis in a hedging strategy. An FCOJ futures contract is for 15,000 pounds of solids, USDA Grade A, not less than 62.5 brix, ratio, and 94 score. In addition to the United States, an FCOJ futures contract may contain juice from oranges produced in Brazil, Mexico, and Costa Rica. Contract months are January, March, May, July, September, and November. FCOJ futures contracts trade 18 months out, but similar to other commodity futures contracts, the nearest three contract months have the most liquidity. The nearby month expires on the 15 th business day from the last business day of the month, and the next contract then becomes the near month. Trading hours are 8:00 AM 2:00 PM, New York time. Delivery of an FCOJ futures contract may be made at exchange licensed warehouses (tank farms) located in Florida, Delaware and New Jersey. Similar to all commodity futures hedging, FCOJ futures hedging can be broadly categorized into two basic types: buying hedges to protect the risk of un-priced product to be purchased and selling hedges to protect the known value of product already owned or being produced. A buying hedge is called a long hedge, since buyers of futures are considered long a futures 2

3 position, while a selling hedge is called a short hedge, since sellers of futures are considered short a futures position. Exhibits 1 and 2 provide examples of basic buying and selling (long and short) hedges using FCOJ futures. Exhibits 3 and 4 provide examples of the impact of incorrectly predicting the difference between cash and futures, the basis, at the time a hedge is lifted on achieving the desired amount of price risk protection. Exhibit 1. Futures Buying Hedge Example. Price risk of un-priced FCOJ to be acquired. Price objective: $1.50 In September, a processor decides he must purchase FCOJ in January for no more than $1.50 per pound solids. The processor fears that a potential freeze creates undue risk for this objective. Assumptions: 1. Cash price will be $.10 above futures price at time the hedge is lifted (basis is $.10 over) 2. Forward pricing objective is $1.50 Cash Price Increase Scenario Futures Cash Basis Sep. Buy Jan Contract at $1.40 $1.50 $.10 Jan. Sell Jan Contract at $1.60 $1.70 $.10 +$.20 -$.20 Effective Price: $ $.20 = $1.50; The buyer paid $1.70 for the cash product, but the futures profit of $.20 made the effective price $1.50, the buyer s objective Cash Price Decrease Scenario Sep. Buy Jan. Contract at $.10 Jan. Sell Jan. Contract at $.10 -$.10 +$.15 Effective Price: $ $.10 = $1.50. The buyer paid $1.40 for the cash product, but the futures loss of $.10 brought the effective price to $1.50, the buyer s objective 3

4 Exhibit 2. Futures Selling Hedge Example. Price risk of priced FCOJ stored in inventory. Price objective: 1.57 A processor owns FCOJ that he has paid $1.57 for. He fears that a large Florida orange crop in the coming season may lower concentrate prices, reducing the value of his inventory. Assumptions: 1. Cash price will be $.12 above futures price at time the hedge is lifted (basis is $.12 over) 2. Desired price protection is $1.57 Cash Price Increase Scenario Futures Cash Basis Jul. Sell Jan Contract at $1.45 $1.57 $.12 Jan. Buy Jan Contract at $1.70 $1.82 $.12 -$.25 +$.25 Effective Price: $ $.25 = $1.57; The seller sold the cash product for $1.82, but the $.25 futures loss made the effective price $1.57, the seller s objective. Cash Price Decrease Scenario Futures Cash Basis Jul. Sell Jan. Contract at $.12 Jan. Buy Jan. Contract at $.12 +$.15 -$.15 Effective Price: $ $.15 = $1.57. The seller sold the cash product for $1.42, but the $.15 futures profit made the effective price $1.57, the seller s objective. 4

5 Exhibit 3. Example of Futures Buying Hedge Example Where Basis is Larger Than Predicted Price risk of un-priced FCOJ to be acquired. Price objective: $1.50 In September, a processor decides he must purchase FCOJ in January for no more than $1.50 per pound solids. The processor fears that a potential freeze creates undue risk for this objective. Assumptions: 1. Cash price will be $.10 above futures price at time the hedge is lifted (basis is $.10 over) 2. Cash price is really $.20 above futures (basis is $.20) at time hedge is removed, rather than $.10 as was predicted Cash Price Increase Scenario Futures Cash Basis Sep. Buy Jan Contract at $1.40 $1.50 $.10 Jan. Sell Jan Contract at $1.60 $1.80 $.20 +$.20 -$.30 Effective Price: $ $.20 = $1.60; The buyer paid $1.80 for the cash product, but the futures profit of $.20 brought the effective price to $1.60, $.10 above the buyers objective, the amount that the basis changed unpredictably. Cash Price Decrease Scenario Sep. Buy Jan. Contract at $.10 Jan. Sell Jan. Contract at $.20 -$.10 +$.00 Effective Price: $ $.10 = $1.60. The buyer paid $1.50 for the cash product, but the futures loss of $.10 brought the effective price to $1.60, $.10 above the buyer s objective, the amount that the basis changed unpredictably. 5

6 Exhibit 4. Example of Futures Selling Hedge with Basis Smaller Than Predicted Price risk of priced FCOJ stored in inventory. Price objective: $1.57 A processor owns FCOJ that he has paid $1.57 for. He fears that a large Florida orange crop in the coming season may lower concentrate prices, reducing the value of his inventory. Assumptions: 1. Cash price will be $.15 above futures price at time the hedge is lifted (basis is $.15 over) 2. Cash price is really $.10 above futures (basis is $.10 over) at time hedge is removed, rather than $.15 as was predicted Cash Price Increase Scenario Futures Cash Basis Jul. Sell Jan Contract at $1.42 $1.57 $.15 Jan. Buy Jan Contract at $1.80 $1.90 $.10 -$.38 +$.33 Effective Price: $ $.38 = $1.52. The seller sold the cash product for $1.90, but the $.38 futures loss made the effective price $1.52, $.05 below the seller s objective, the amount that the basis changed unpredictably. Cash Price Decrease Scenario Futures Cash Basis Jul. Sell Jan. Contract at $.15 Jan. Buy Jan. Contract at $.10 +$.12 -$.17 Effective Price: $ $.12 = $1.52; The seller sold the cash product for $1.40, but the $.12 futures profit made the effective price $1.52, $.05 below the seller s objective, the amount that the basis changed unpredictably. 6

7 The Realities of Hedging with FCOJ Futures Most cash orange juice transactions are between the largest four or five sellers and the largest four or five buyers. And they tend to be with forward contracts with volume, and often weeks or longer before delivery of product, price commitments. If the cash price is established for several weeks or longer prior to product delivery, each day s largely unpredictable fluctuation in the futures price during this period is an equally unpredictable fluctuation in the basis. Moreover, an adverse weather forecast or some other unexpected event impacting supply or demand can cause large (unpredictable) changes in futures prices and thus in this case, the basis. These buying and selling commitments protect both buyers and sellers in an industry where two countries and 8 10 firms account for the majority of the commodity bought and sold, but they leave little to no room for the buyer and seller to opportunistically trade physical product in a large, heavily traded spot cash market, which is why one doesn t exist. This absence of a large, daily traded spot cash orange juice market significantly limits market forces to enable convergence, which is one reason the FCOJ futures to cash basis is more difficult to predict than in many futures markets. In order for a long hedge to effectively protect the price risk of a commodity to be bought, the selling price of that commodity must be known, or fixed through a forward sale. If the selling price is not known or fixed and is highly correlated with the price of the commodity used to make that final product, long hedges will often not be effective. This situation largely applies to brands and private label (end users). For example, if an end user bought futures to protect the price of raw product to be acquired, then both the raw product (including futures) and retail prices for the final product declined, the end user hedger would have a futures loss with no offsetting cash gain. As it turns out, another difference between FCOJ futures and many other markets is that retail orange juice price changes are highly correlated with changes in bulk orange juice and even orange prices (Exhibits 5 and 6). That s because the orange juice brands can raise their selling prices when fruit prices increase significantly, and they must ultimately lower their retail prices if fruit prices decline substantially. This doesn t happen with products like cereals or soft drinks to anywhere near the degree it does with orange juice. The reason for this is that raw fruit prices are a much larger percentage of the retail orange juice price than, for example, wheat is of cereal prices or sweeteners are of soft drink prices. For example, wheat is only 6 percent of the prices of cereals and bakery products and sweeteners are less than 4 percent of soft drink prices. That is the reason that the retail prices of bread or soft drinks no longer fluctuate with wheat or sweetener prices, although record swings in these commodity prices, such as occurred as a result of crops being diverted into ethanol production, can impact retail prices somewhat. 7

8 8

9 Although between the 1980s and the 2000s, orange prices declined from 37 to 25 percent of retail OJ prices, and this decline led to a one year lag in the correlation between changes in orange and retail prices, orange prices are still a much larger percentage of retail OJ prices than these other commodities. While this phenomenon has only contributed to a one year lag between OJ and orange prices, if oranges continue to become a smaller component of OJ s cost of goods, the correlation between orange and retail prices will decline no matter what lag period is used. When/if this happens, long hedges will be more effective for un-priced bulk OJ to be acquired and growers will bear even more of the risk of price volatility in the citrus industry than they do now. Unfortunately, citrus growers do not have federal price support programs to protect them like sugar, corn and wheat growers have. What this means is that the OJ end users cannot use the FCOJ futures market as effectively as bulk processors to hedge their commodity price risk. But then with the ability to change their selling prices in response to changes in fruit and bulk juice prices, they do not need to. However, with the longer lag time between changes in retail and fruit prices, the effectiveness of hedging using FCOJ futures should be improving for these end users. Since oranges are not deliverable against a hedge, using FCOJ futures to protect orange prices is called cross-hedging. Unless a processor gives the grower a futures-based fruit price, which means that the basis is fixed contractually, cross hedging for a grower can be unnecessarily risky. However, some fruit dealers who are experienced futures traders do effectively hedge orange purchases and sales, using both FCOJ futures and options. The FCOJ futures market, then, is a market where the end users have little incentive to use it for buying hedges to protect price risk of un-priced raw product and limited ability to do so, and that offers limited-to-no opportunity for market forces to converge cash and futures markets. The result is a futures market much more thinly traded than traditional commodities like sugar, corn or wheat, heavily influenced by speculators, that isn t always a reliable short-term price discovery mechanism and one with a basis that is difficult to predict. However, pricing mechanisms, called Exchanges of Futures for Physicals have evolved that enable buyers and sellers to mitigate the unpredictability of this basis in many situations. Exchanges of Futures for Physicals An exchange of futures for physicals, or EFP, is a transaction where buyers and sellers of futures contracts are also buyers and sellers of the physical (cash) product. The parties agree on where delivery of the product will be made, a delivery schedule, juice quality specifications, and most importantly, the basis to futures prices. For example, an EFP may be for 96 score Valencia concentrate, brix, ratio, bacteria less than 200 CFU/ML, delivered to Citrusco s Lake Wales plant at the rate of 12 tankers per day from May 7 10, at $.20 over May FCOJ futures. If it is for NFC, it would obviously be at a basis considerably above $.20 over. This would be 32,000 lbs. solids X 48 tankers / 15,000 lbs. solids per futures contract = about 102 9

10 futures contracts of concentrate; or 5,500 gallons NFC X (12 brix) X 48 tankers / 15,000 = about 18 futures contracts. Each party must have open futures contracts for this transaction to work. An intriguing aspect of an EFP is that the buyer and seller can each have very different prices. Assume that between March and September, cash concentrate prices decline from $1.95 to $1.45 per lb. solids and futures prices decline from $1.85 to $1.30. When futures prices began to decline, on June 1 the seller sold 100 November futures contracts at $1.65 to hedge against further price declines. On September 15, the buyer (an OJ brand) purchased 100 November contracts at $1.31 to lock in this price, fearing that a low October crop forecast would drive prices back up. However, the October crop forecast was in line with expectations and futures and cash prices remained firm. The buyer contacts his futures broker to find out if there is a processor who has a short futures position that would be interested in delivering product with an EFP and tells the broker the specs he needs. The broker has such a seller. They agree on $.10 over November futures as their price, do the transaction, and their broker notifies the commodity futures exchange which cancels delivery and/or contract reversal obligations of the buyer and seller by crossing off their contracts. The buyer s actual purchase price is $ $.10 = $1.41. The seller s actual selling price is $ $.10 = $1.75. The cash market remains at $1.45. The buyer and seller were able to transfer favorable positions in the futures market to a favorable cash transaction for the physical product, thus the term Exchange of Futures for Physicals. An EFP transaction entails establishing an EFP price and an invoice price. The EFP price can be set arbitrarily because it has no effect on the buyer s and seller s actual transaction prices. It is needed only for the futures exchange to use when crossing off contracts on their books. But the invoice price is needed to facilitate the actual purchase and sale of the physical product. The invoice price must be the EFP price plus or minus any premiums or discounts to futures agreed upon by the parties. Exhibits 7A and 7B show EFP transactions with EFP prices at both ends of the example cash price swing. The buyer s and seller s actual prices remain the same. Factors affecting EFP premiums include whether it is NFC or concentrate, quality specifications such as color, flavor, ratio, overall score, fruit variety; delivery location; delivery schedule, storage time, payment terms and a number of other things. Anything that the parties agree is correlated with FCOJ futures can be priced using EFPs. When I was at Tropicana, I even bought oranges a few times with an EFP pricing mechanism. What an EFP does is set the futures-tocash market basis contractually, which mitigates the risk of its unpredictability. 10

11 Exhibit 7A. Use of Exchange of Futures for Physicals Example A. EFP Price is $1.45 Buyer s Transaction Buyer s purchase of November futures $1.31 EFP price (crossed off as futures sell) 1.45 Buyer s futures profit.14 Invoice Price for cash transaction 1.55 (EFP price plus $.10 premium) Adjusted for futures gain -.14 Buyer s actual price 1.41 Seller s Transaction Sellers sale of November 1.65 EFP price (crossed off as futures buy) 1.45 Seller s futures profit.20 Invoice price for cash transaction 1.55 Adjusted for futures gain +.20 Seller s actual price 1.75 Cash market price $

12 Exhibit 7B. Use of Exchange of Futures for Physicals Example B. EFP Price is $1.95 Buyer s Transaction Buyer s purchase of November futures $1.31 EFP price (crossed off as futures sell) 1.95 Buyer s futures profit.64 Invoice Price for cash transaction 2.05 (EFP price plus $.10 premium) Adjusted for futures gain -.64 Buyer s actual price 1.41 Seller s Transaction Sellers sale of November 1.65 EFP price (crossed off as futures buy) 1.95 Seller s futures loss.30 Invoice price for cash transaction 2.05 Adjusted for futures loss -.30 Seller s actual price 1.75 Cash market price $

13 Limitations to Exchanges of Futures for Physicals Typically, an EFP occurs when a seller with a short futures position seeks a buyer who already has a favorable long position or can readily put one in place, or vice-versa with a buyer seeking a seller. If the parties agree on a premium to futures before either or both have a futures position, such as in a multi-year contract or too far in advance for enough market liquidity to get a position on, the premiums to futures agreed upon (the basis), may not work because the basis established by market forces may change between the time the parties agree to it contractually and the time the futures positions can be put on. So EFPs tend to be opportunistic pricing mechanisms. They have improved FCOJ futures market volume and open interest (futures positions not yet reversed) somewhat, but FCOJ is still a thinly traded market, part of which is also due to the fact that the orange juice market is not as big as other food markets like cereals and soft drinks. Exhibit 8. Delivery and Carrying Costs for FCOJ Futures Contracts Costs in $ per Contract (15,000 Lbs. Solids) Taking Delivery, Carrying for Taking Delivery 2 Months and Redelivering Broker Commission in Broker Commission out Handling out Storage Interest Total cost Total cost per pound solids $ One-half of handling in and out fee months storage at $300 per month 3 Interest of 4.75% per year, compounded monthly on commission, handling and 1.5 months storage costs. Interest on value of juice is not included. Source: Intercontinental Exchange (ICE) 13

FROZEN CONCENTRATED ORANGE JUICE

FROZEN CONCENTRATED ORANGE JUICE FROZEN CONCENTRATED ORANGE JUICE IntercontinentalExchange (ICE ) became the center of global trading in soft commodities with its acquisition o f t h e N ew Yo r k B o a rd o f Tra d e (NYBOT) in 2007.

More information

CBOT Soybean Crush. Reference Guide

CBOT Soybean Crush. Reference Guide CBOT Soybean Crush Reference Guide Introduction In the soybean industry, the term crush refers both to a physical process as well as a value calculation. The physical crush is the process of converting

More information

What is Grain Merchandising, Hedging and Basis Trading?

What is Grain Merchandising, Hedging and Basis Trading? Grain Merchandising What is Grain Merchandising, Hedging and Basis Trading? Grain merchandising describes the process of buying and selling grain. Agribusiness firms that merchandise grain include grain

More information

AGRICULTURAL PRODUCTS. Introduction to Hedging with Dairy Futures and Options

AGRICULTURAL PRODUCTS. Introduction to Hedging with Dairy Futures and Options AGRICULTURAL PRODUCTS Introduction to Hedging with Dairy Futures and Options TABLE OF CONTENTS 1. INTRODUCTION 1 2. WHAT ARE DAIRY FUTURES AND OPTIONS? 3 3. FINANCIAL INTEGRITY OF THE DAIRY FUTURES MARKET

More information

Chapter Five: Risk Management and Commodity Markets

Chapter Five: Risk Management and Commodity Markets Chapter Five: Risk Management and Commodity Markets All business firms face risk; agricultural businesses more than most. Temperature and precipitation are largely beyond anyone s control, yet these factors

More information

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs. OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss

More information

INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System

INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System Introduction For well over a century, industry representatives

More information

Milk Hedging Strategies Utilizing Futures & Options

Milk Hedging Strategies Utilizing Futures & Options Milk Hedging Strategies Utilizing Futures & Options A Basic Understanding of hedging and forward pricing scenarios Utilizing both futures & options traded at the Chicago Mercantile Exchange focusing on

More information

Commodity Futures and Options

Commodity Futures and Options Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an

More information

Introduction to Futures Markets

Introduction to Futures Markets Agricultural Commodity Marketing: Futures, Options, Insurance Introduction to Futures Markets By: Dillon M. Feuz Utah State University Funding and Support Provided by: Fact Sheets Definition of Marketing

More information

INTRODUCTION TO COTTON OPTIONS Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System

INTRODUCTION TO COTTON OPTIONS Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System INTRODUCTION TO COTTON OPTIONS Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System INTRODUCTION For well over a century, industry representatives

More information

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s c s THE UNDAMENTALS AND ECHNIQUES OF RADING OMMODITY PREADS The purpose of this booklet is to give you a better understanding of various aspects of spread trading in the futures market. Center for Futures

More information

Definitions of Marketing Terms

Definitions of Marketing Terms E-472 RM2-32.0 11-08 Risk Management Definitions of Marketing Terms Dean McCorkle and Kevin Dhuyvetter* Cash Market Cash marketing basis the difference between a cash price and a futures price of a particular

More information

Iowa Farm Outlook. New Data Indicates Lower Retail Meat Prices

Iowa Farm Outlook. New Data Indicates Lower Retail Meat Prices Iowa Farm Outlook November 1, 2002 Ames, Iowa Econ. Info. 1849 New Data Indicates Lower Retail Meat Prices As part of the Mandatory Price Reporting legislation in 1999 Congress directed USDA to develop

More information

Mechanics of the Futures Market. Andrew Wilkinson

Mechanics of the Futures Market. Andrew Wilkinson Mechanics of the Futures Market Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading

More information

CME Dairy Markets. USDA Dairy Industry Advisory Committee June 3, 2010. Paul E. Peterson Director, Commodity Research & Product Development

CME Dairy Markets. USDA Dairy Industry Advisory Committee June 3, 2010. Paul E. Peterson Director, Commodity Research & Product Development CME Dairy Markets USDA Dairy Industry Advisory Committee June 3, 2010 Paul E. Peterson Director, Commodity Research & Product Development Brief History of CME Group Began as Chicago Butter & Egg Board

More information

INTRODUCTION TO OPTIONS MARKETS QUESTIONS

INTRODUCTION TO OPTIONS MARKETS QUESTIONS INTRODUCTION TO OPTIONS MARKETS QUESTIONS 1. What is the difference between a put option and a call option? 2. What is the difference between an American option and a European option? 3. Why does an option

More information

Section III Advanced Pricing Tools

Section III Advanced Pricing Tools Section III Learning objectives The appeal of options Puts vs. calls Understanding premiums Recognizing if an option is in the money, at the money or out of the money Key terms Call option: The right,

More information

Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives

Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives Managing Feed and Milk Price Risk: Futures Markets and Insurance Alternatives Dillon M. Feuz Department of Applied Economics Utah State University 3530 Old Main Hill Logan, UT 84322-3530 435-797-2296 dillon.feuz@usu.edu

More information

Reading: Chapter 19. 7. Swaps

Reading: Chapter 19. 7. Swaps Reading: Chapter 19 Chap. 19. Commodities and Financial Futures 1. The mechanics of investing in futures 2. Leverage 3. Hedging 4. The selection of commodity futures contracts 5. The pricing of futures

More information

Financial Instruments Traded on the Commodity Exchange

Financial Instruments Traded on the Commodity Exchange Financial Instruments Traded on the Commodity Exchange Using the Financial Markets A cotton trader will almost always prefer to manage his price risk through physical positions and contracts for cotton,

More information

Understanding and Using Basis for Livestock Producer Marketing Management 1

Understanding and Using Basis for Livestock Producer Marketing Management 1 Understanding and Using Basis for Livestock Producer Marketing Management 1 By: Al Wellman, and Reviewed by Gene Murra Edited by Duane Griffith and Stephen Koontz 2 This Fact Sheet will assist a livestock

More information

PRICE FIXING STRATEGIES INTRO TO HEDGING

PRICE FIXING STRATEGIES INTRO TO HEDGING PRICE FIXING STRATEGIES INTRO TO HEDGING QuickTime and a decompressor are needed to see this picture. Why manage risk? The business of a cotton producer is to grow and market cotton at a profitable price.

More information

Manual for SOA Exam FM/CAS Exam 2.

Manual for SOA Exam FM/CAS Exam 2. Manual for SOA Exam FM/CAS Exam 2. Chapter 7. Derivative markets. c 2009. Miguel A. Arcones. All rights reserved. Extract from: Arcones Manual for the SOA Exam FM/CAS Exam 2, Financial Mathematics. Fall

More information

Risks Associated With Marketing

Risks Associated With Marketing Risks Associated With Marketing November, 2013 Federal Reserve Bank of Chicago Market Risk (Price Risk) is Always Present Two Components Solution Futures Price Risk Basis Risk (Cash price relative to futures

More information

Commodity Futures and Options

Commodity Futures and Options Understanding CIS 1089 Commodity Futures and Options Larry D. Makus and Paul E. Patterson for Grain Marketing The Authors: L.D. Makus Professor, Department of Agricultural Economics and Rural Sociology,

More information

Hedging Milk with BFP Futures and Options

Hedging Milk with BFP Futures and Options Curriculum Guide I. Goals and Objectives A. Gain an understanding of milk price seasonality. B. earn about basis and how to track it over time. C. earn how to hedge future milk sales with BFP futures and

More information

In today s farming. Using Futures Markets to Manage Price Risk in Feeder Cattle Operations. Introduction W 320A

In today s farming. Using Futures Markets to Manage Price Risk in Feeder Cattle Operations. Introduction W 320A W 320A Using Futures Markets to Manage Price Risk in Feeder Cattle Operations Andrew P. Griffith Assistant Professor & Extension Economist- Livestock University of Tennessee R. Curt Lacy Associate Professor

More information

CFA Examination DERIVATIVES - FUTURES Page 1 of 5

CFA Examination DERIVATIVES - FUTURES Page 1 of 5 DERIVATIVES FUTURES A derivative is a contract or agreement whose value depends upon the price of some other (underlying) commodity, security or index. A. FORWARD CONTRACTS Forward: an agreement between

More information

Principles of Hedging with Futures

Principles of Hedging with Futures MARKETING & UTILIZATION Cooperative Extension Service Purdue University West Lafayette, IN 47907 NCH-47 Principles of Hedging with Futures Chris Hurt, Purdue University Robert N. Wisner, Iowa State University

More information

The basic concepts of grain price options

The basic concepts of grain price options Grain Price Options Basics File A2-66 January, 1996 The basic concepts of grain price options are discussed below. Methods of using grain price options to market grain are presented in: Options Tools to

More information

Derivative (finance) Hedge (finance)

Derivative (finance) Hedge (finance) Derivative (finance) In finance, a derivative is a financial instrument derived from some other asset; rather than trade or exchange of the asset itself, market participants enter into an agreement to

More information

How futures markets work. Convergence between cash and futures

How futures markets work. Convergence between cash and futures How futures markets work Convergence between cash and futures Futures markets Futures markets have existed over 150 years as a means for managing price risk Futures contracts are purchase and sales agreements

More information

1. (short answer) Answer each question in no more than one sentence of normal length.

1. (short answer) Answer each question in no more than one sentence of normal length. Practice problems for Lecture 1: answers 1. (short answer) Answer each question in no more than one sentence of normal length. a. Define arbitrage. Arbitrage is a strategy that makes money sometimes and

More information

General Information Series

General Information Series General Information Series 1 Agricultural Futures for the Beginner Describes various applications of futures contracts for those new to futures markets. Different trading examples for hedgers and speculators

More information

Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT

Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT CONTENTS An Exchange with Credentials (Page 3) Introduction to Derivatives»

More information

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp.

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp. Futures Investment Series S P E C I A L R E P O R T No. 2 The Mechanics of the Commodity Futures Markets What They Are and How They Function Mount Lucas Management Corp. The Mechanics of the Commodity

More information

FUTURES & OPTIONS EW YORK

FUTURES & OPTIONS EW YORK C o c o a FUTURES & OPTIONS EW YORK N BOARD OF TRADE 1. The New York Board of Trade (NYBOT ) provides the world s premier futures and options markets for several internationally traded agricultural commodities:

More information

Introduction to Margin Management. Commodity & Ingredient Hedging, LLC

Introduction to Margin Management. Commodity & Ingredient Hedging, LLC Introduction to Margin Management Commodity & Ingredient Hedging, LLC www.cihedging.com 312-596-7755 What is a Margin? The concept of a profit margin is not new. Revenues minus expenses equal the profit

More information

AGRICULTURAL PRODUCTS. Self-Study Guide to Hedging with Livestock Futures and Options

AGRICULTURAL PRODUCTS. Self-Study Guide to Hedging with Livestock Futures and Options AGRICULTURAL PRODUCTS Self-Study Guide to Hedging with Livestock Futures and Options TABLE OF CONTENTS INTRODUCTION TO THE GUIDE 4 CHAPTER 1: OVERVIEW OF THE LIVESTOCK FUTURES MARKET 5 CHAPTER 2: FINANCIAL

More information

ICE BARLEY FUTURES & OPTIONS. www.theice.com. April 2013. IntercontinentalExchange ICE Futures Canada ICE Clear Canada

ICE BARLEY FUTURES & OPTIONS. www.theice.com. April 2013. IntercontinentalExchange ICE Futures Canada ICE Clear Canada ICE BARLEY FUTURES & OPTIONS April 2013 IntercontinentalExchange ICE Futures Canada ICE Clear Canada www.theice.com Page 2 of 5 ICE Futures Canada is pleased to introduce new Barley futures and options

More information

MARKETING AND POLICY BRIEFING PAPER

MARKETING AND POLICY BRIEFING PAPER MARKETING AND POLICY BRIEFING PAPER Department of Agricultural and Applied Economics, College of Agricultural and Life Sciences, University of Wisconsin-Madison Cooperative Extension, University of Wisconsin-Extension

More information

Commodity Options as Price Insurance for Cattlemen

Commodity Options as Price Insurance for Cattlemen Managing for Today s Cattle Market and Beyond Commodity Options as Price Insurance for Cattlemen By John C. McKissick, The University of Georgia Most cattlemen are familiar with insurance, insuring their

More information

Industry Informational Report. Exchange for Physicals (EFP)

Industry Informational Report. Exchange for Physicals (EFP) Industry Informational Report Exchange for Physicals (EFP) Background information on transaction structure, industry practice and applications prepared by RISK LIMITED CORPORATION All information contained

More information

COAL MARKET FREQUENTLY ASKED QUESTIONS

COAL MARKET FREQUENTLY ASKED QUESTIONS COAL MARKET FREQUENTLY ASKED QUESTIONS Over the course of the past decade, numerous issues have arisen in the U.S. coal trading arena. Bankruptcies, standardized trading contracts, and liquidity are a

More information

Commodity Pricing Software

Commodity Pricing Software Commodity Pricing Software The main objective of this software is to provide farmers with an objective viewpoint of their potential risk and returns from selling or buying commodities while hedging their

More information

MCQ on International Finance

MCQ on International Finance MCQ on International Finance 1. If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with a) international monetary credits. b) dollars. c) yuan,

More information

Merchandising and Inventory Management of Commodities: Carrying Charges and Basis

Merchandising and Inventory Management of Commodities: Carrying Charges and Basis Merchandising and Inventory Management of Commodities: Carrying Charges and Basis Raleigh B. Wilson Several months ago when I was asked to prepare a program related to the cash activity of the grain industry,

More information

Physical Natural Gas

Physical Natural Gas Risk Management 101 Physical Natural Gas Gas Measurement Mcf Thousand cubic feet Volumetric measurement MMBtu Million British Thermal Units Heating value measurement of gas based on a standard heat value

More information

Fruit Juice Market - 04 April 2014

Fruit Juice Market - 04 April 2014 Fruit Juice Market - 04 April 2014 OVERVIEW: The fruit juice market is presently in a fairly quiet phase largely due to flat demand. Supply is generally reported to be regular with the exceptions of peach

More information

Futures and Options Trading in Milk and Dairy Products

Futures and Options Trading in Milk and Dairy Products A3732 Futures and Options Trading in Milk and Dairy Products A Guidebook for Dairy Producers Edward V. Jesse and Robert A. Cropp Contents Introduction. 1 Part I: Dairy futures contracts What is a futures

More information

MODEL TEST PAPER COMMODITIES MARKET MODULE

MODEL TEST PAPER COMMODITIES MARKET MODULE MODEL TEST PAPER COMMODITIES MARKET MODULE Q:1. Which of the following can be the underlying for a commodity derivative contract? (a) Interest Rate (b) Euro-Indian Rupee (c) Gold (d) NIFTY Q:2. Daily mark

More information

ROLE OF TRADE FINANCE

ROLE OF TRADE FINANCE Volume 3, Issue 5 (May, 2014) Online ISSN-2277-1166 Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in ROLE OF TRADE FINANCE Hemanshu Kapadia Proprietor, Practicing

More information

DERIVATIVES IN INDIAN STOCK MARKET

DERIVATIVES IN INDIAN STOCK MARKET DERIVATIVES IN INDIAN STOCK MARKET Dr. Rashmi Rathi Assistant Professor Onkarmal Somani College of Commerce, Jodhpur ABSTRACT The past decade has witnessed multiple growths in the volume of international

More information

EXAMINING FUTURES AND OPTIONS

EXAMINING FUTURES AND OPTIONS EXAMINING FUTURES AND OPTIONS TABLE OF 130 Grain Exchange Building 400 South 4th Street Minneapolis, MN 55415 www.mgex.com mgex@mgex.com 800.827.4746 612.321.7101 Fax: 612.339.1155 Acknowledgements We

More information

Commodity products. Self-Study Guide to Hedging with Livestock Futures and Options

Commodity products. Self-Study Guide to Hedging with Livestock Futures and Options Commodity products Self-Study Guide to Hedging with Livestock Futures and Options In a world of increasing volatility, CME Group is where the world comes to manage risk across all major asset classes interest

More information

Using Futures Markets to Manage Price Risk for Feeder Cattle (AEC 2013-01) February 2013

Using Futures Markets to Manage Price Risk for Feeder Cattle (AEC 2013-01) February 2013 Using Futures Markets to Manage Price Risk for Feeder Cattle (AEC 2013-01) February 2013 Kenny Burdine 1 Introduction: Price volatility in feeder cattle markets has greatly increased since 2007. While

More information

CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS

CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS CBOT AGRICULTURAL PRODUCTS GRAIN AND SOYBEAN FUTURES AND OPTIONS Futures Markets provide the mechanism to ensure fairly consistent prices for grains, soybeans, and processed foods. Managing Uncertainty

More information

Currency Futures and Forward Contracts

Currency Futures and Forward Contracts Currency Futures and Forward Contracts by Geneviève Payette presented to Gregor Smith Queen s University January 28, 2005 In the past 30 years exchange rates have become much more volatile and less predictable

More information

Navigating the complex world of options

Navigating the complex world of options Navigating the complex world of options Brian Grete Sr. Market Analyst, Pro Farmer The Basics of Options: Calls vs. Puts Call options: An option that gives the buyer the right, but not the obligation,

More information

Last year took the world s financial markets to the

Last year took the world s financial markets to the Merchandisers corner By Diana Klemme Swaps, spreads and safety nets Last year took the world s financial markets to the brink. Trillions of dollars of real estate transactions, OTC credit swaps, and other

More information

ADVANCED COTTON FUTURES AND OPTIONS STRATEGIES

ADVANCED COTTON FUTURES AND OPTIONS STRATEGIES ADVANCED COTTON FUTURES AND OPTIONS STRATEGIES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System INTRODUCTION Cotton producers have used futures

More information

J. Gaspar: Adapted from Jeff Madura, International Financial Management

J. Gaspar: Adapted from Jeff Madura, International Financial Management Chapter5 Currency Derivatives J. Gaspar: Adapted from Jeff Madura, International Financial Management 5. 1 Currency Derivatives Currency derivatives are financial instruments whose prices are determined

More information

Futures Contract Introduction

Futures Contract Introduction Futures Contract Introduction 1 The first futures exchange market was the Dojima Rice exchange in Japan in the 1730s, to meet the needs of samurai who being paid in rice and after a series of bad harvests

More information

Hedging strategies aim to reduce price risk

Hedging strategies aim to reduce price risk April 2014 INSIGHTS Hedging strategies aim to reduce price risk AgriThought AgriBank provides financial solutions to meet the needs of production agriculture in America s heartland. We feature our research

More information

Frequently Asked Questions on Derivatives Trading At NSE

Frequently Asked Questions on Derivatives Trading At NSE Frequently Asked Questions on Derivatives Trading At NSE NATIONAL STOCK EXCHANGE OF INDIA LIMITED QUESTIONS & ANSWERS 1. What are derivatives? Derivatives, such as futures or options, are financial contracts

More information

Grain Marketing Terms

Grain Marketing Terms Grain Marketing Terms File A2-05 January 2010 www.extension.iastate.edu/agdm Actuals - The physical commodities that are being traded. Arbitrage - The simultaneous purchase of commodities in one market

More information

Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar

Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar CME FX futures provide agricultural producers with the liquid, efficient tools to hedge against exchange rate risk

More information

LOCKING IN TREASURY RATES WITH TREASURY LOCKS

LOCKING IN TREASURY RATES WITH TREASURY LOCKS LOCKING IN TREASURY RATES WITH TREASURY LOCKS Interest-rate sensitive financial decisions often involve a waiting period before they can be implemen-ted. This delay exposes institutions to the risk that

More information

Grain Marketing 101. University of Maryland Extension

Grain Marketing 101. University of Maryland Extension Grain Marketing 101 Jenny Rhodes Shannon Dill John Hall Extension Educators, Agriculture & Natural Resources Marketing terminology CBOT futures Basis Contracts Forward Contract Hedge to Arrive Basis Contract

More information

Options on Beans For People Who Don t Know Beans About Options

Options on Beans For People Who Don t Know Beans About Options Options on Beans For People Who Don t Know Beans About Options Remember when things were simple? When a call was something you got when you were in the bathtub? When premium was what you put in your car?

More information

REPORT ON THE SECONDARY MARKET FOR RGGI CO 2 ALLOWANCES. Prepared By:

REPORT ON THE SECONDARY MARKET FOR RGGI CO 2 ALLOWANCES. Prepared By: REPORT ON THE SECONDARY MARKET FOR RGGI CO 2 ALLOWANCES Prepared By: March 2009 A. INTRODUCTION The primary market for RGGI allowances consists mainly of the auctions where allowances are initially sold.

More information

What are futures contracts?

What are futures contracts? The Futures Market Introduction and Mechanics (c) 2002-2013 Gary R. Evans. May only be used for non-profit educational purposes only without permission of the author. What are futures contracts? A futures

More information

CBOT AGRICULTURAL PRODUCTS

CBOT AGRICULTURAL PRODUCTS CBOT AGRICULTURAL PRODUCTS Business Development 141 W. Jackson Boulevard Chicago, IL 60604-2994 312-341-7955 fax: 312-341-3027 New York Office One Exchange Plaza 55 Broadway, Suite 2602 New York, NY 10006

More information

AGRICULTURE UNDERSTANDING BASIS

AGRICULTURE UNDERSTANDING BASIS AGRICULTURE UNDERSTANDING BASIS General ContentsInformation Series Understanding Basis..................................... 2 Keeping History........................................ 6 Putting Basis to

More information

Hedging Strategies Using

Hedging Strategies Using Chapter 4 Hedging Strategies Using Futures and Options 4.1 Basic Strategies Using Futures While the use of short and long hedges can reduce (or eliminate in some cases - as below) both downside and upside

More information

Introduction to Futures Contracts

Introduction to Futures Contracts Introduction to Futures Contracts September 2010 PREPARED BY Eric Przybylinski Research Analyst Gregory J. Leonberger, FSA Director of Research Abstract Futures contracts are widely utilized throughout

More information

Futures Trading in Cheese: How Will it Work?

Futures Trading in Cheese: How Will it Work? University of Wisconsin-Madison Department of Agricultural Economics Marketing and Policy Briefing Paper Series Department of Agricultural Economics, College of Agricultural and Life Sciences, University

More information

TRADING PLACES inside the oil futures market. Karen Matusic

TRADING PLACES inside the oil futures market. Karen Matusic TRADING PLACES inside the oil futures market Karen Matusic Nymex Facts Biggest commodities futures market Volumes account for more than 10 times world oil production Started as a milk and butter exchange

More information

AGRICULTURAL COMMODITY What you need to know

AGRICULTURAL COMMODITY What you need to know AGRICULTURAL COMMODITY What you need to know Product Disclosure Statement Issue date: 12 March 2014 Issued by: Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 You should read all sections

More information

METAC Workshop Sensitivity to Market Risk. Sensitivity to Market Risks

METAC Workshop Sensitivity to Market Risk. Sensitivity to Market Risks Sensitivity to Market Risk 1 I A OVERVIEW DEFINITION is one of the most complex areas of banking and it s an area where most examiners have limited experience. refers to the risk that changes in market

More information

OPTIONS ON SHORT-TERM INTEREST RATE FUTURES*

OPTIONS ON SHORT-TERM INTEREST RATE FUTURES* OPTIONS ON SHORT-TERM INTEREST RATE FUTURES* Anatoli Kuprianov Options are contracts that give their owners the right, but not the obligation, to buy or sell a specified item at a set price on or before

More information

Bid - An expression indicating a desire to buy a commodity at a given price, opposite of offer.

Bid - An expression indicating a desire to buy a commodity at a given price, opposite of offer. Actuals - An actual physical commodity someone is buying or selling, e.g., soybeans, corn, gold, silver, Treasury bonds, etc. Also referred to as actuals. Analogous Years Analysis - An analytical methodology

More information

Fundamentals of Futures and Options (a summary)

Fundamentals of Futures and Options (a summary) Fundamentals of Futures and Options (a summary) Roger G. Clarke, Harindra de Silva, CFA, and Steven Thorley, CFA Published 2013 by the Research Foundation of CFA Institute Summary prepared by Roger G.

More information

Your Guide to Foreign Exchange. Strategies for managing risk and making payments worldwide.

Your Guide to Foreign Exchange. Strategies for managing risk and making payments worldwide. Your Guide to Foreign Exchange Strategies for managing risk and making payments worldwide. Contents Capitalizing on global opportunities... 1 Bringing the benefits of FX to your business... 2 Integrating

More information

INSIGHT SPECIAL: Coffee Futures 101

INSIGHT SPECIAL: Coffee Futures 101 COFFEE DIVISION OF ED&F MAN December 2011 INSIGHT SPECIAL: Coffee Futures 101 CBS&A Coffee Business Ser vices & Academy, a Volcafe Initiative Highlights All commodity markets tend to be volatile. Agricultural

More information

Part 1. E. Speculative Theory 1. Leverage 2. Risk 3. Market liquidity 4. Price volatility

Part 1. E. Speculative Theory 1. Leverage 2. Risk 3. Market liquidity 4. Price volatility EXAMINATION SUBJECT AREAS National Commodity Futures Examination SERIES 3 The following is a general listing of the major subject areas covered by the examination and does not represent an exhaustive list

More information

Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr

Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr Market will worry about demand later Weekly Corn Review for May 11, 2016 By Bryce Knorr USDA didn t do much to help the corn market in its May 10 reports other than give soybeans a big lift. That could

More information

Glossary of Futures Terms

Glossary of Futures Terms NATIONAL FUTURES ASSOCIATION Glossary of Futures Terms An Introduction to the Language of the Futures Industry 1 Glossary of Futures Terms: An Introduction to the Language of the Futures Industry National

More information

Risk assessment is the process of identifying and quantifying a trader s exposure to risk based on their position in the market.

Risk assessment is the process of identifying and quantifying a trader s exposure to risk based on their position in the market. Overview of Price Risk Assessment In order to effectively manage risk, the first step is to carry out a risk assessment that will allow traders and producer organizations to determine how and when risk

More information

VANILLA OPTIONS MANUAL

VANILLA OPTIONS MANUAL VANILLA OPTIONS MANUAL BALANCE YOUR RISK WITH OPTIONS Blue Capital Markets Limited 2013. All rights reserved. Content Part A The what and why of options 1 Types of options: Profit and loss scenarios 2

More information

High Fructose Corn Syrup (HFCS) in the U.S. Caloric Sweetener Supply

High Fructose Corn Syrup (HFCS) in the U.S. Caloric Sweetener Supply High Fructose Corn Syrup (HFCS) in the U.S. Caloric Sweetener Supply June 2011 Ross Korves Economic Policy Analyst Prepared for the Corn Refiners Association High Fructose Corn Syrup (HFCS) in the U.S.

More information

Third Quarter 2015 Earnings Conference Call. 21 August 2015

Third Quarter 2015 Earnings Conference Call. 21 August 2015 Third Quarter 2015 Earnings Conference Call 21 August 2015 Safe Harbor Statement & Disclosures The earnings call and accompanying material include forward-looking comments and information concerning the

More information

CME Options on Futures

CME Options on Futures CME Education Series CME Options on Futures The Basics Table of Contents SECTION PAGE 1 VOCABULARY 2 2 PRICING FUNDAMENTALS 4 3 ARITHMETIC 6 4 IMPORTANT CONCEPTS 8 5 BASIC STRATEGIES 9 6 REVIEW QUESTIONS

More information

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk Derivatives Why? Allow easier methods to short sell a stock without a broker lending it. Facilitates hedging easily Allows the ability to take long/short position on less available commodities (Rice, Cotton,

More information

An Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub

An Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub An Assessment of Prices of Natural Gas Futures Contracts As A Predictor of Realized Spot Prices at the Henry Hub This article compares realized Henry Hub spot market prices for natural gas during the three

More information

ETHANOL PRODUCTION FROM US SUGAR: A BAD IDEA ON ECONOMIC AND PRACTICAL GROUNDS

ETHANOL PRODUCTION FROM US SUGAR: A BAD IDEA ON ECONOMIC AND PRACTICAL GROUNDS Strategic Marketing & Business Consulting February 2007 ETHANOL PRODUCTION FROM US SUGAR: A BAD IDEA ON ECONOMIC AND PRACTICAL GROUNDS Faced with the prospect of opening the US market to more imported

More information

Options Strategies in a Bull Market

Options Strategies in a Bull Market Class: Options Strategies in a Bull Market www.888options.com 1.888.678.4667 This document discusses exchange-traded options issued by The Options Clearing Corporation. No statement in this document is

More information

Understanding Leveraged Exchange Traded Funds AN EXPLORATION OF THE RISKS & BENEFITS

Understanding Leveraged Exchange Traded Funds AN EXPLORATION OF THE RISKS & BENEFITS Understanding Leveraged Exchange Traded Funds AN EXPLORATION OF THE RISKS & BENEFITS Direxion Shares Leveraged Exchange-Traded Funds (ETFs) are daily funds that provide 200% or 300% leverage and the ability

More information