4 BULLETIN 236, U. S. DEPARTMENT OP AGRICULTURE. 



HEDGING. 



As a protection or insurance against loss from price fluctuations 

 between the time of purchase and the time the grain is sold, an 

 elevator may hedge its holdings. When grain is taken into the 

 elevator it can be immediately protected by its sale for future delivery. 

 When the grain is sold the hedge is taken up; that is, a purchase for 

 future delivery is made. If the price of cash wheat has fallen in the 

 meantime, the loss is counterbalanced by the profit on the hedge, as 

 the future price will have decreased with the cash price. In this 

 manner an elevator protects itself against loss by the drop in the 

 price and waives the profit which might be made in case the price 

 increased. Doing business in this way ehminates all chance of large 

 losses or gains in the fluctuations in prices which take place from the 

 time the farmer is paid for his deliveries until sales are made. 



Dealing in futures should be allowed only where actual grain is 

 hedged. Only lots of 5,000 bushels of wheat can be bought or sold 

 for future delivery. Since an elevator often desires to protect 

 smaller amounts, commission firms generally will accept orders for 

 purchases or sales of futures in smaller quantities, say lots of 1,000 

 or 2,000 bushels. The commission firm then assembles its various 

 orders and secures trades' in lots of 5,000 bushels. 



INSURANCE OF ELEVATORS. 



The practice of insuring against fire is a well-established principle 

 in respect to all property, but carelessness in keeping insurance which 

 is sufficient to cover total loss has proven disastrous in many instances. 

 Owing to the marked fluctuation in the amount of grain on hand 

 during the shipping season, grain elevators particularly are likely 

 to be underinsured. For convenience, it is advisable to insure build- 

 ings and contents under separate policies. The policy covering 

 buildings seldom varies in amount during the year, but that covering 

 grain may be subject to change. Some managers in small towns, 

 where no insurance agent is stationed, have protected their grain 

 stock by insuring for maximum capacity. Others make arrange- 

 ments with the agent allowing for changes on notice, and thus effect 

 a saving in premiums paid. 



DESCRIPTION OF THE OFFICE OF MARKETS AND RURAL ORGANIZATION 

 GRAIN ELEVATOR ACCOUNTING SYSTEM. 



As this bulletin is intended to be sufficiently complete to enable an 

 elevator company to install the system as devised by the Office of 

 Markets and Kural Organization, a detailed description of the forms 

 comprising it is essential. 



