Raw material future contract

speculative transaction on the commodity exchange to anchor input prices during processing. – A mill, for example, sells the raw material just stored at a certain price – assumed: 10 GE – to a later date at which the stock must be replenished and grain purchased again. – If the market price for grain and thus also the price for flour at the time of performance is lower – assumed: 8 GE – than the price fixed in the contract, the mill makes a profit. It procures the grain at today’s price of 8 GE and in return receives from the contracting party the 10 GE stipulated in the contract. – If the price of the grain at the time of performance is higher – assuming 12 GE – then the mill will indeed lose in the forward transaction; because it must now pay the difference between the contractually agreed price of 10 GE and the market price on the performance date of 12 GE. But compensation can probably be earned through the now increased flour price. – In each of the two cases, the mill has avoided unexpectedly high, surprising losses via the speculative transaction and has achieved the securing of its revenues (securing revenues). – Similarly, all companies that buy raw materials and process them into finished goods, such as fruit at yogurt manufacturers, cocoa at chocoladiers, or ore at smelters and crude oil at refiners, must act in the same way. Some also refer to the relevant contracts as the “financialization (so!) of raw materials.” – See agribulk, absorption phase, bearish spread, call, commercials, commodity fund, contango, hedge transaction, option, put, return, implied, risk, commodity fund, commodity price risk, speculation, futures contract, availability premium, representability, commodity certificate, commodity futures contract, replacement risk. – BaFin Annual Report 2006, p. 41 f. (supervisory guidance), ECB Monthly Report September 2008, p. 21 (Fluctuations in commodity prices depending on speculators: overview), ECB Monthly Report October 2011, p. 13 ff. (very detailed presentation; comparisons between commodity and financial market returns; overviews, literature references).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/