4 BULLETIN" 236, U. S. DEPARTMENT OF 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 eliminates 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 hi small towns, 
where no insurance agent is stationed, have protected their grain 
stock by insuring for maximum ?apacity. 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 
GRALN 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 Rural Organization, a detailed description of the forms 
comprising it is essential. 
