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?
- Farmers (usually referred to as hedgers) typically buy Futures, not options.
- The CBOE does not transact in agricultural commodities
- The CME, and other exchanges, transact in agricultural commodities.
- 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.
- 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.