In this scenario, is it showing the possibilities of choosing either path? In reality, I can choose either one, correct? So for your example, could I have chosen to invest only in the futures contract? I got confused near the end of the video where you showed the net price. I guess my confusion comes down to if we need to be involved in the cash market and the future market, or if we can just choose the futures? Or is it a strategy to not put all of our commodity in one market, so we would want to be half in futures, half in cash? I hope this makes sense. Amazing video!
Good question. The video shows what is called a hedger...in both markets and typical for an ag producer to manage risk. You can sure trade in just futures market and try to buy low and later sell high...or sell high at first, then buy low. This person is called a speculator and tries to make money on price moves in the market. I may try to make a video on this perspective. Good idea. Thanks
Hello Dr Hanagriff, I am studying a Bachelor of Agribusiness majoring in Rural Science in Australia. I was wondering if you could make a video covering this concept and explain why this is the case ? “Economists claim that economic surplus is maximised in markets which are perfectly competitive and at equilibrium.” Thanks Ashlea
Thanks for the question and lots of economic theories... however a surplus... supply exceeds demand would be more of an issue in the lack of perfect competition. I could do a video on consumer and producer surplus and that concept could help. Thanks and note to come
The values quoted are usually by cwt or commonly called hundredweight. So, then the values you see are $/100 to get a price per lbs...which is just another way to show the price...by lbs or cwt.
Yep...could be an approach. The video shows a ag producer that actually feeds cattle as their business...so this video shows how they can offset risk. If you have that business....cattle feeding, your business streams are custom feeding (no risk on price), but that may not keep your lots full....so they also buy cattle to be effecient...so this helps them manage that price risk.
Because you would be speculating in that scenario. If futures went down instead of went up, that long position would cost the feedlot money. But since they’re physically buying the cattle, they would have made up for that loss in their hedge account by turning around and buying the cattle at a cheaper price
In this scenario, is it showing the possibilities of choosing either path? In reality, I can choose either one, correct? So for your example, could I have chosen to invest only in the futures contract? I got confused near the end of the video where you showed the net price. I guess my confusion comes down to if we need to be involved in the cash market and the future market, or if we can just choose the futures? Or is it a strategy to not put all of our commodity in one market, so we would want to be half in futures, half in cash? I hope this makes sense. Amazing video!
Good question. The video shows what is called a hedger...in both markets and typical for an ag producer to manage risk. You can sure trade in just futures market and try to buy low and later sell high...or sell high at first, then buy low. This person is called a speculator and tries to make money on price moves in the market. I may try to make a video on this perspective. Good idea. Thanks
Hello Dr Hanagriff, I am studying a Bachelor of Agribusiness majoring in Rural Science in Australia. I was wondering if you could make a video covering this concept and explain why this is the case ? “Economists claim that economic surplus is maximised in markets which are perfectly competitive and at equilibrium.” Thanks Ashlea
Thanks for the question and lots of economic theories... however a surplus... supply exceeds demand would be more of an issue in the lack of perfect competition. I could do a video on consumer and producer surplus and that concept could help. Thanks and note to come
Why do you divide the point value by 100 to determine a per pound cost? In other words, why do they denominate a point as the value per pound * 100?
I have an answer to my own question. As CME states, the price quotation is "US Cents per Pound"
The values quoted are usually by cwt or commonly called hundredweight. So, then the values you see are $/100 to get a price per lbs...which is just another way to show the price...by lbs or cwt.
@@rhanagriff Thank you for the clarification!
Why even feed the cattle if those 8 contracts netted you 94k. Take the money and run.
Yep...could be an approach. The video shows a ag producer that actually feeds cattle as their business...so this video shows how they can offset risk. If you have that business....cattle feeding, your business streams are custom feeding (no risk on price), but that may not keep your lots full....so they also buy cattle to be effecient...so this helps them manage that price risk.
Because you would be speculating in that scenario. If futures went down instead of went up, that long position would cost the feedlot money. But since they’re physically buying the cattle, they would have made up for that loss in their hedge account by turning around and buying the cattle at a cheaper price