(2) Marketing Practices to Reduce The Risk of Price Fluctuation

These flashcards cover key vocabulary and concepts related to marketing practices for managing price fluctuations, emphasizing the mechanics of forward contracting and the futures market.

Forward Contracting

A contract that sets the amount, price, and quality of a product to be delivered by the seller to the buyer in the future.

Buyer's Side of Forward Contracting

A buyer may purchase a commodity today or enter a forward contract to avoid price uncertainty.

Price Risk

The risk of fluctuations in the price of a commodity, impacting profits for both buyers and sellers.

Short Position

A position in which a trader sells a futures contract, agreeing to deliver a commodity in the future without currently owning it.

Long Position

A position in which a trader buys a futures contract, agreeing to receive a commodity at a specified price on a future date.

Futures Contract

A standardized agreement to buy or sell a specified quantity of a commodity at a predetermined price at a specific future date.

Speculators

Market participants who aim to profit from price changes without the intention of taking delivery of the commodity.

Hedgers

Participants in the market who use futures contracts to protect against price fluctuations of the commodities they produce or consume.

Opportunity Cost

The potential loss of profit when choosing one option over another, such as securing a forward contract versus waiting for market pricing.

Risk Mitigation

The process of reducing or eliminating risk, often through strategies like futures contracting.

Minneapolis Grain Exchange

One of the futures markets where trading of contracts for agricultural products occurs.

Market Dynamics

The forces that impact the supply and demand of a commodity, influencing its price movements.

Price Protection

The strategy of locking in prices through futures or forward contracts to avoid potential losses due to price changes.

Commodity Delivery

The act of providing a commodity as per the terms agreed upon in a futures contract at the maturity date.

Contract Maturity

The date on which the obligations of a futures contract must be fulfilled, typically involving delivery of the commodity.