re small manufacturers buying sugar
locally, who, when the market appears in a strong condition desire to
be assured of their regular supply of sugar at a specified price. Under
such conditions we have known jobbers to sell them sugar for delivery
over several months. If at any time you are placed in a similar
position, and desire to take care of your customers in this manner,
without incurring too great a risk, the Exchange offers exceptional
opportunities for protection, as, of course, you would be able to buy
sugar for delivery in any month you desire, even as far in advance as
one year.
It is clear that if you sell at a specified price for delivery at a
certain time, your only protection is your belief that you'll be able
to buy sugar cheaply enough to make a profit.
CHART 4
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BUYING SUGAR FUTURES
1. Based on the expectation of higher prices.
2. To establish costs, pre-determine selling prices and protect profits
on advance sales.
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Initial | | |
Transactions | Subsequent Transactions |Sugar Cost | Result
-------------+------+----------+--------+-------+------+------------+-------
| |Condition | Price |Result |Price | Figure it | In
| |of market | you | of | you | this way |each
| | when you | would |selling| pay | |case
| |buy actual| obtain | your | for | |the
| | sugar |for your|futures|actual| |same
| | |futures | |sugar | |
-------------+------+----------+--------+-------+------+------------+-------
| | | | | |Price paid |Your
| | | | | |for actual |sugar
| | | |A | |sugar less |cost is
You buy Sugar|When |If it has | |profit | |hedging |6.00
Futures at |you |advanced | |of | |profit |as pre-
6.00 to cover|buy |to 8.00 | 8.00 |2.00 | 8.00 |8-2=6 |deter-
future |actual| | | | | |mined
requirements;|sugar,| | |A | |Price paid |
fix your
|