D22—Lancaster Farming, Saturday, February 28,1981
HARRISBURG Farmers who
use the commodity markets as a
management tool can gam some
control over the price they receive
for their prodcuts
But they’d better beware tunng
into speculators, cautions Merrill
Lynch Commodity Executive Ellis
E Grossmckle.
‘lf you compete with the
speculators you are going to get
iour head handed to you,” he told
farmers at the Pennsylvania Ag
Cooperative Marketing
Association meeting held Monday
On the other hand, the com
modity markets will allow a far
mer to establish a price for his
product that he can live with.
Grossmckle explained the
futures market basically is a big
auction with people on the floor
both buying and selling goods
What is traded is a contract to
PACMA
(Continued from Page D2l)
>2 50 under market price, but
■avmg producers the trouble ot
marketing cattle for themselves
Ellis Grossnickle, commodity
account executive foi Merrill
Lynch, Harrisburg, talked about
hedging farm commodities
He drew a sharp line between the
farmer who hedges tor
management reasons and the
speculator who is trying to make a
fast buck
If you compete with the
speculators, you re going to get
your head handed to you, he told
the group —CH
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Broker explains hedging opportunities
deliver a given amount ot goods of
a given quality at a specific point
in time for an established price
The speculator, he said, plays
the market for a change of a penny
or two on a huge volume of con
tracts The hedger, on the other
hand, looks at trends and watches
price movements over a longer
period of time on a commodity he
actually buys or sells.
There are two types of hedge, a
sell hedge and a buy hedge
Farmers usually use sell hedges
In these cases, the hedger actually
is holding the grain, cattle or hogs
When a farmer sees a price he
can live with, he can place a sell
or short hedge
It is safest for a hedger to
maintain a position until the actual
gram is sold Then he can buy back
the position
A buy hedge would be used to
buy a product ahead of time on the
futures market
An example would be a tarmer
who tears a jump in soybean meal
pi ices but can t stoi e sufficient
meal on the home tarm
That tarmei would take a long
position, buying a contract, ex
pecting the price to go up
In that wav, even though the mill
charges the fanner more tor the
feed, the tarmer will be profiting
from his hedge and the price will
even out
It also is possible to hedge on the
basis in a given market Basis is
the numbei ot cents per bushel
•that, on a given day, the local cash
price of a commodity is above or
below the cunent price foi a
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By observing the basis ovei a wide deviations, a tanner can use market swings
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