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About sugar buying for jobbers by B. W. Dyer

Whatever happens in the sugar market


you feel that the price of sugar is low and probably going higher. You try to anticipate your requirements for some time to come, but find that refiners will not sell for more than thirty days.

You can go on the Exchange and buy futures in the quantity and month desired. Assume then, that you pay 6.00 for your futures. Now, whatever happens in the sugar market, you know you can get the quantity of sugar desired at about 6.00 (see Chart 4).

The market will advance, decline or hold steady.

Say the market advances. When it seems advisable to close out your Exchange contract and buy actual sugar, the price may have gone up to 8.00. You will then sell your futures at about 8.00, go into the market and buy actual sugar at the same price, assuming, of course, that the actual market has advanced in relative proportion--which is likely. Although actual sugar has cost you 2.00 more than you had figured, you have made 2.00 on your futures. Profit and loss cancel each other. Your sugar cost is 6.00.

On the other hand, suppose the market declines after you have bought futures at 6.00, and goes down to 4.00, when it seems advisable to close out your Exchange contract. You sell your futures at 4.00, a loss of 2.00. But you will also buy your actual sugar at 4.00, which is 2.00 lower than you had planned. Your actual sugar cost was therefore 6.00, which is

the price you had figured was favorable.

If the price still is at 6.00 when you desire to liquidate, you would sell your futures and buy your actual sugar at about the same price. Thus you have neither gained nor lost, but you have been sure of getting sugar at 6.00, which is the price you felt was low.

The time to buy actual sugar is generally when the market becomes strong and an advance in the price of the actual commodity seems imminent; but the time to buy sugar futures is before the strength develops. The future market invariably discounts declines and anticipates advances.

_2. Buying of Sugar Futures to protect profits on advance sales to customers_

While it may not be an established custom, we know numerous instances where jobbers have sold sugars in small quantities for future delivery. The examples to which we refer are small manufacturers buying sugar locally, who, when the market appears in a strong condition desire to be assured of their regular supply of sugar at a specified price. Under such conditions we have known jobbers to sell them sugar for delivery over several months. If at any time you are placed in a similar position, and desire to take care of your customers in this manner, without incurring too great a risk, the Exchange offers exceptional opportunities for protection, as, of course, you would be able to buy sugar for delivery in any month you desire, even as far in advance as one year.

It is clear that if you sell at a specified price for delivery at a certain time, your only protection is your belief that you'll be able to buy sugar cheaply enough to make a profit.


---------------------------------------------------------------------------- BUYING SUGAR FUTURES

1. Based on the expectation of higher prices. 2. To establish costs, pre-determine selling prices and protect profits on advance sales. ----------------------------------------------------------------------------

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