I looked up onions, lettuce and tomatoes (because burgers), and the volatility actually looks very similar. Am I missing something or looking at the wrong things?
People are willing to lose a small but predictable amount of money to avoid occasionally and unpredictably losing a massive amount of money. The former is a loss they can plan for and absorb. The latter might kill their business.
Traders are often happy to take the other side of that trade because they can trade against many counterparties, collect a small premium from each one, and try to ensure their counterparties won’t all fail in a correlated way.
You may have liabilities or income that exist outside of financial markets e.g. if I have 500t of wheat due to be harvested I might want to hedge enough to guarantee I can pay my staff - ive locked in the price of wheat, I might make less money as a result but my risk is lower.
For speculators yes. But for a farmer and the consumer of the goods they would rather lock in a margin for their goods and run their business than risk guessing what the price will be at harvest time or consumption time. It’s called hedging.
How many farmers do you imagine are in this thread?
And consumers neither lock in margins nor run a business because consumers buy at retail…
Ok charitably, maybe you use “consumer” in a special sense of businesses that consume raw materials such as owners of onion ring factories. In those cases, future prices (as opposed futures prices) are typically negotiated directly into contracts with producers of those commodities…and how many of those are in this thread?
In the vast majority of cases, futures are traded speculatively and physical delivery of goods and chattles is an extreme exception.
cwal37 · · focus · HN ↗
<a href="https://en.wikipedia.org/wiki/Onion_Futures_Act" rel="nofollow">https://en.wikipedia.org/wiki/Onion_Futures_Act
(which also banned box office receipt futures)
A fun thing is to go on FRED and make a graph with prices from onions and, say, corn to see the differences in volatility.
chirau · · focus · HN ↗
Tomato: <a href="https://fred.stlouisfed.org/series/WPU01130217" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130217 Onion: <a href="https://fred.stlouisfed.org/series/WPU01130216" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130216 Lettuce: <a href="https://fred.stlouisfed.org/series/WPU01130215" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130215
gradus_ad · · focus · HN ↗
brookst · · focus · HN ↗
brudgers · · focus · HN ↗
mhh__ · · focus · HN ↗
brudgers · · focus · HN ↗
chadgpt6 · · focus · HN ↗
brookst · · focus · HN ↗
I’ll keep paying though.
articulatepang · · focus · HN ↗
Traders are often happy to take the other side of that trade because they can trade against many counterparties, collect a small premium from each one, and try to ensure their counterparties won’t all fail in a correlated way.
brudgers · · focus · HN ↗
brookst · · focus · HN ↗
Would you rather have net profits of 20, -10, 15, -5, -10, 25, -5 year over year, or profits of 4, 4, 4, 5, 4, 5, 5?
brudgers · · focus · HN ↗
brookst · · focus · HN ↗
Your hung up on money, everyone is trying to explain that the exact same money is better when it is predictable versus erratic.
brudgers · · focus · HN ↗
Yes, it is about the money.
mhh__ · · focus · HN ↗
brudgers · · focus · HN ↗
And rarely is done by farmers.
mpmpmpmp · · focus · HN ↗
brudgers · · focus · HN ↗
And consumers neither lock in margins nor run a business because consumers buy at retail…
Ok charitably, maybe you use “consumer” in a special sense of businesses that consume raw materials such as owners of onion ring factories. In those cases, future prices (as opposed futures prices) are typically negotiated directly into contracts with producers of those commodities…and how many of those are in this thread?
In the vast majority of cases, futures are traded speculatively and physical delivery of goods and chattles is an extreme exception.