Commodities

Hi all,

I'm rather new to this forum and still a beginner in the route of investments.

I have a question which might seem rather stupid but I have no clues as to where I can find the answer. So pardon me for my stupidity but here it is.

"Do farms buy/sell their agriculture products at the price speculated everyday on the commodities market?
I mean, hypothetically, if one day corn is trading at 300c/bushel and the next day it shoots up to like 400c/bushel, does it mean the farm producing corn is selling 300c/bushel in one day and 400c/bushel for the next day?"

In any case, I have no idea if this is the correct place to post this thread, so, moderators, if it is in the wrong place, please let me know.

Thanks in advance for the replies.

(07-07-2014, 12:23 PM)Chrissyy Wrote: Hi all,

I'm rather new to this forum and still a beginner in the route of investments.

I have a question which might seem rather stupid but I have no clues as to where I can find the answer. So pardon me for my stupidity but here it is.

"Do farms buy/sell their agriculture products at the price speculated everyday on the commodities market?
I mean, hypothetically, if one day corn is trading at 300c/bushel and the next day it shoots up to like 400c/bushel, does it mean the farm producing corn is selling 300c/bushel in one day and 400c/bushel for the next day?"

In any case, I have no idea if this is the correct place to post this thread, so, moderators, if it is in the wrong place, please let me know.

Thanks in advance for the replies.

I moved it to a more appropriate location.

Regards
Moderator

They use futures or forwards. Futures and forwards are derivatives for lets say corn $/bushel at a future price for whatever size. They contract to sell at that price.

When the spot price at harvest is below the initial futures price, the farmer gains the difference in the futures contract of X ((Futures price - Spot price) x Bushels Contract) dollars + the price sold at spot/bushel.

If using forwards, they simply deliver the bushels for $(futures price x bushels).

Some farmers contract a portion of their harvest, some dont, some does it for all.

Ohmygod, you're a saviour.

Thank you so much!