344 THE GRAIN TRADE 



definite price. He then has no further interest in price fluctuations, 

 so far as this grain is concerned. 



The country shipper may sell grain "on track" terminal mar- 

 ket, by shipping the grain to the terminal and selling it from a 

 sample displayed on the table on the trading floor of the Grain 

 Exchange. The country shipper may ship his grain to the terminal 

 and there have it stored in a public elevator. In this case it is 

 mixed with other grain of the same grade but this process of 

 mixing really began when the grain from different farms was 

 mixed in the local elevator. 



Storage and Hedging Problems of Country Elevator. Grain, 

 particularly wheat, is commonly hurried to the elevators soon 

 after thrashing. The farmer has the privilege of storing his grain 

 in the local elevator, if he so elects, taking therefore warehouse 

 receipts commonly in the form of "storage tickets." The local 

 elevator, holding from 25,000 to 35,000 bushels (on the average) 

 soon fills up with grain, a part of which is "stored grain." It is 

 thus often necessary to ship out stored grain. In such a case it 

 is a common practice for the manager to protect himself against 

 loss by hedging such shipments of stored grain in the future 

 market. He hedges by buying for future delivery as much as 

 he has received, shipped and sold on the cash market. He is now 

 insured. Then when the time comes that the farmer owning the 

 "stored grain" (not in the elevator) orders it sold, the future is 

 sold out and the transaction is closed. Any loss on the cash grain 

 is offset by a gain on the future; any gain on the cash grain is 

 offset by a loss on the future. 



The country shipper, particularly in the Minneapolis district, 

 also hedges his day-to-day purchases of grain. If he buys 5,000 

 bushels to-day, he orders a future sold in the pit against it. In a 

 few weeks the cash grain reaches the terminal and is sold. And 

 now the future is bought back. Let us assume that the cash grain 

 sells at a loss of ten cents a bushel, owing to a decline in the market. 

 Future prices usually move with cash prices. Manifestly the future 

 he has sold at one price may now be bought in at a profit of approx- 

 imately ten cents a bushel, so that he has been insured against 

 loss by price fluctuations. The converse is true, namely, that 

 should cash prices sharply advance, futures would also advance, 

 ordinarily, so that he would realize no speculative gain by market 

 changes. Hedging is insurance against loss through price fluctua- 

 tions. The owner of hedged grain has no further interests in 

 price changes. 



