Foghorn gave you a really good answer. My 2 cents, using your corn example. Today, I can either buy or sell a corn contract. If Im a cattle feeder I may buy one, as a corn grower I may sell one. The contract is written for me to make or take delivery at some future date. We make a deal and its done. In many cases the farmer, and always the speculator, doesnt actually make or take delivery of the physical contract. He simply buys or sells the opposite position just before the due date.
If I sell a 6.50 a bushel corn contract and the corn market is 6.00 at delivery then I sell my physical corn for 6.00 and buy a 6.00 corn contract to cancel my sale making the 50 cents back on the contract. If however the market is 7.00 at delivery I make the 50 cents on my physical corn and lose 50 cents when I have to buy the 7.00 contract to cancel my sale. In either case, I've guarenteed my sale price.
What eats peoples lunches are shorts and margin calls. If I bought that sold that 6.50 contact and corn goes to 7.00 I have to have money on deposit to cover that 50 cent spread. Over many contracts and with no physical goods to cover the sale margin calls can get big quick. Thats what ruined the Hunts in silver back in the early 80's. They couldnt cover their margin calls and the exchange began to liquidate their positions at a loss driving down the market even more. Shorts, as you mentioned are the same situation. You still have to cover the loss. If you are making physical delivery you have to buy it and sell at a loss. If you are making paper delivery then you lose on the contract spread. If you are in the money you arent necessarily wiped out, out of the money and with no insurance and you take a big financial hit. Some of the major players who make or take physical delivery have a force majeur clause written. This typically costs extra but covers them from having to make physical delivery, but they still have to take the paper loss.
We sell tractor parts! We have the parts you need to repair your tractor - the right parts. Our low prices and years of research make us your best choice when you need parts. Shop Online Today. [ About Us ]
Today's Featured Article - A Cautionary Tale - by Ian Minshull. In the early 1950s my father bought an Allis Chalmers B and I used it for all the row crop work with the mangolds and potatoes, rolling and the haymaking on our farm. The farm and the Allis were sold and I have spent a lifetime working on farms throughout the country. I promised myself that one day I would own an Allis. That time event
... [Read Article]
Latest Ad:
1964 I-H 140 tractor with cultivators and sidedresser. Starts and runs good. Asking 2650. CALL RON AT 502-319-1952
[More Ads]
All Rights Reserved. Reproduction of any part of this website, including design and content, without written permission is strictly prohibited. Trade Marks and Trade Names contained and used in this Website are those of others, and are used in this Website in a descriptive sense to refer to the products of others. Use of this Web site constitutes acceptance of our User Agreement and Privacy Policy
TRADEMARK DISCLAIMER: Tradenames and Trademarks referred to within Yesterday's Tractor Co. products and within the Yesterday's Tractor Co. websites are the property of their respective trademark holders. None of these trademark holders are affiliated with Yesterday's Tractor Co., our products, or our website nor are we sponsored by them. John Deere and its logos are the registered trademarks of the John Deere Corporation. Agco, Agco Allis, White, Massey Ferguson and their logos are the registered trademarks of AGCO Corporation. Case, Case-IH, Farmall, International Harvester, New Holland and their logos are registered trademarks of CNH Global N.V.
