110 ESSAYS ON WHEAT 



forth. Of course, pure speculators may and often do 

 speculate in wheat as in other things in the hope of an- 

 ticipating the movements of the market and therehy mak- 

 ing money; but, apart altogether from such speculations, 

 dealing in futures is, under normal conditions, an ab- 

 solute necessity for the grain trade. Millers, for in- 

 stance, in order to regulate the output of their mills, must 

 anticipate their needs for wheat to grind into flour often 

 months before they are ready to have the grain delivered 

 to them, and accordingly must deal in futures. Some- 

 times it is necessary first to buy wheat and then sell it 

 again. Thus if in August a miller has bought, let us 

 say, more October wheat than he finds he can actually 

 store when October is approaching, he may be obliged to 

 hedge, i. e., sell his October wheat and buy wheat to be 

 delivered during a later month such as November or De- 

 cember.^'^ Dealing in futures is not merely advantageous 

 to the domestic miller but plays an essential role in the 

 business of exporting wheat to foreign countries from the 

 terminal elevators. 



Within the Grain Exchange is an independent corpora- 

 tion known as the Winnipeg Grain Exchange Clearing 



47 The term hedge really means to protect and is applied to all 

 kinds of transactions made to prevent loss due to fluctuations of the 

 market. For the sake of illustration, let us suppose that an ele- 

 vator owner has sent a number of agents into the country who have 

 purchased wheat from various farmers, and let us further suppose 

 that the wheat so purchased is not due to arrive at Fort William 

 until several months have elapsed. In the interval the market may 

 fluctuate seriously. To avoid possible loss, the owner of the wheat 

 may hedge, i. e., sell the grain which he has purchased for delivery 

 in a future month. When he has done this, he knows exactly what 

 his obligations are in respect to the wheat he purchased but has now 

 sold, and whether he has made a loss or profit from it. In any case, 

 as the fluctuations of the market under normal conditions are small, 

 his loss or profit can only be relatively small also; but the intention 

 in hedging is to avoid undue risks. 



