MEMORANDUM of these components are equally important in

MEMORANDUM

To: Mellissa Koehler

From Emily Errickson

Date: January 21, 2018

Subject: CME futures recap assignment

 

CME group offers the widest range of
tradable products available to buyers and sellers. CME is offered in over 150
countries delivering the best prices and easy access to products around the
world. The main thing I learned was about the futures market.  The futures market all started with the central
grain markets, where farmers sell their products for instant delivery. Forward
delivery are private contracts that are between the buyer and seller.  Futures are for the purchase and sale of
commodities for future delivery.

 

Forward Contracts and Future contract differences:

 

Forward contracts and futures
contracts are legal agreements to buy or sell an asset. They are contracts
where you buy and sell assets on a specific date or during a specific month. Forward
contracts are between buyer and seller, and contracts might not all be the
same. Futures contracts are facilitated through a futures exchange.  They are based off quality, quantity, delivery
time and place. The price is negotiated through an auction process either
through Exchange trading floor or CME Globex.

Impact on food system:

The futures market impacts the
food system by allowing electronic
access to a broad spectrum of products on a single platform. This makes it
easier for buyers and sellers to make orders quickly and efficiently, without
effecting a huge change in price. The farmer can sell their futures to hedge against
the risk of owning the cash commodity. Food processing companies use the futures
market to estimate their input costs, commodity
fund managers look for the best price for different kinds of grain products,
energy companies look for corn available to use for ethanol production. Speculators
use the futures market to profit from their opinion on which way the market
will move either up or down. Each of these components are equally important in finding
a fair price for everyone.

Future Markets uses:

 

The futures market is used to forecast
price by using the futures market to get a price, which is found through an
auction-like process. It
responds quickly to information that can affect supply and demand. It also can
be used by people as a gauge as to what is going on in the market. One way futures markets manage risk is by using hedging to reduce the risk associated with
price changes that can happen at any time. Once they use the futures markets they
set a price so their risk is lower. The futures
market creates profit for speculators by the speculator taking on risk in an
attempt to profit from positive price movement. They make money when they buy a
contract then sell it back for more money they bought it for. They pretty much
forecast what the price is going to be in the future.

 

 

 

 

Hedgers and
Speculators:

 

 Hedgers use futures to reduce or limit the risk that come from a price
change. People sell futures on their products to hedge against a drop in
commodity prices. This makes it easier for producers to do long-term planning
in case the price changes and allows them to plan for fixed costs. Hedgers use
the futures market to sell futures contracts to establish a price for an asset.
Speculators are individuals trading their own funds. They enter the futures market with
the plan to make a profit from changes in prices. They buy stuff whether they know a lot
about it or not and buy low and hope to sell it high with the future contracts
they bought.  Hedging is where you are in an investment position intended to reduce
losses or gains that may be experienced if a negative event happens, therefore risks
are reduced.

 

Agricultural commodity selection:

 

The agriculture commodity that I have chosen is corn. The
reason I have chosen this, is I just went on the agriculture page and just
picked a random commodity and the first one that I saw was corn. Specifications for contracts of this commodity are, corn
is paid in cents per bushel. The contract unit is 5000 bushels and the minimum
price fluctuation Is ¼ of one cent per bushel.