I recently become interested in finance. Many books discuss options as simple examples of derivatives. I also read some "popular books". I read in "The Poker Face of Wall Street" that almost no farmers actually use commodity exchanges (p91), while in many places the opposite is claimed (for example, "Traders, Guns, & Money", p 25, says "The major users [of commodity futures] were really farmers"). Why are these two accounts differ?

  • $\begingroup$ Voting to close... basic and not very quant $\endgroup$ Apr 3, 2011 at 0:44
  • $\begingroup$ Closed. This isn't a quant question at all. $\endgroup$ Apr 3, 2011 at 2:58
  • $\begingroup$ If you are interested in these types of questions, consider committing to the history.SE on area 51. $\endgroup$ Sep 15, 2011 at 15:48

1 Answer 1

  1. Farmers (usually referred to as hedgers) typically buy Futures, not options.
  2. The CBOE does not transact in agricultural commodities
  3. The CME, and other exchanges, transact in agricultural commodities.
  4. These exchanges grew, for the most part, directly from the trading interactions of farmers(hedgers/producers) and middle-men(speculators), in the area where these commodities were brought to be processed and sold.
  5. Even if a farmer never buys or sells an exchange traded commodity contract, he will almost surely check the listed exchange price when making a deal with a broker to sell his crop. Also, larger farmers/producers and consumers/foodbeverage manufacturers are more likely to use exchange traded commodities to reduce their risk/costs.

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