B. W. Dyer

“ Exchanges operate to take the gamble out of business. They help to put and maintain business on a sound basis. That some people who have no real interest in the commodity use the exchange speculatively does not alter this fact.
In providing machinery by which speculative risks incident to a jobber's business may be shifted from the jobber to those who make a business of assuming such risks, exchanges help to stabilize his business and to remove a large part of the destructive uncertainty with which he would otherwise have to contend. ”

“ Therefore we welcome trading in refined sugar futures and the opportunity to offer you the advantages that may be derived from a conservative, intelligent use of its services.
The Exchange provides certain quality standards and other regulations to safeguard your interests. But your real assurance of protection lies in the character and reliability of your broker. If your broker is not strong financially you do not have back of your contract the responsibility that you might otherwise have. ”

“ The Sugar Exchange is a market place, where buyers and sellers of sugar or their representatives meet to trade.
The Exchange provides a concentration point, where, under any market conditions, sugar may be bought or sold at a price.
What that price is, is determined by how much sugar is for sale and how many people want it. If the supply is large and buyers are few, the price will be low. If sugar is scarce and buyers are numerous, the price will be high. Or, to put it in another way, when there are more sellers than buyers, the market declines; when more buyers than sellers, it advances. ”

“ On the other hand, when refiners are badly behind on deliveries, even buyers located at the source of supply will find themselves facing a similar problem the solution of which may be found in a use of the Exchange.
It is therefore evident that the selling of futures may be a transaction the sole purpose of which is to eliminate speculation from a jobber's business.
Regardless of how careful a buyer may be, there is an element of speculation in each purchase of actual sugar.
If the price goes up, there is a speculative gain—the sugar is worth more. ”

“ If you had a favorable contract with a broker who became insolvent, you would have no means of forcing the fulfillment of the contract, and no way of securing the profit which was due you. The thing to do, of course, is to choose a broker who is so strong financially that you incur no danger in this respect whatsoever. ”

“ There are times when the market will be so out of line that the buying of futures should result profitably. At other times, with conditions reversed, selling of futures seems obviously advisable. We do not claim that jobbers can protect sugar purchases with absolute and exact precision. On the basis of long exchange experience, we do believe, however, that by a discreet use of the Exchange, and by using the market when quotations are favorably out of line, jobbers can do so to their decided advantage. ”

“ To the unenlightened business man, Time is a bugaboo—a gambler whose cards are stacked and against whom there is no defense. Such a man conducts his business from hand to mouth, in constant fear. He is a fatalist, taking his profits and losses as if they were gifts or blows of Fortune. ”

“ Therefore, it is obvious that although the exchange market should be on a parity with the actual market, the unequal fluctuations of the two markets will be constantly throwing them out of parity or "out of line." ”

“ A jobber must anticipate the market in order to take full advantage of it, and in this connection it should be borne in mind that the Sugar Exchange, as in the case of practically all exchanges, usually anticipates either favorable or unfavorable developments in the market for the actual commodity. Consequently, prompt action is necessary when either a higher or lower market is expected, as the Exchange market will usually be the first to reflect changing conditions. ”

“ If a man has a profit, let us say 2¢ a pound, and he hedges, he maintains his profit of 2¢ a pound as compared with the market at the time of delivery, or at the time when he expects to sell this sugar, regardless of whether the market is higher or lower. ”

“ In the case of all commodities which cannot be bought or sold at a common market place (or exchange) , price fluctuations are usually wide and frequent, because no large group ever has common knowledge of supply, demand and other factors that govern prices—purchases and sales are made direct between individuals, and knowledge of the amount asked or paid is restricted to a limited few. ”

“ A small jobber located in the same territory as refiners buys a small amount of sugar today and distributes it to his trade the next—time is negligible. A large jobber, buying perhaps for several branch houses, or located at points which necessitate a delay of two or three weeks in transit, may find it necessary even on a declining market to purchase a considerable amount of sugar, and, as a result, weeks may go by before his sugar arrives and is sold—time is vitally important. ”

“ If, added to his knowledge of sugar, he also possesses a broad knowledge of economic fundamentals and a perspective upon and contact with world activities as they affect all phases of the business of sugar, his service will be many times more valuable than if he were limited by a small organization, by a definite locality or by experience in only a few phases of this business.
A sugar broker who merely accepts and transacts orders is giving no service worth the name. ”

“ As business grows, instead of decreasing—risks increase. Any machinery which might operate to eliminate or reduce this uncertainty or speculative element in a jobber's business, would, we believe, be welcomed. Exchanges provide just such machinery.
Other commodities, such as raw sugar, wheat, cotton, pork and coffee have had this machinery for years and it was provided for refined sugar on May 2, 1921, when trading in refined sugar futures was inaugurated on the floor of the New York Coffee and Sugar Exchange, Inc. ”

“ It is now admitted that, had exchange trading in refined sugar existed in 1920, a general use of the exchange by all branches of the trade might have prevented, to a considerable extent, the abnormal advance in sugar prices of that period, with the hardship and misfortune that attended.
The fact that an exchange always provides a buyer and a seller, at a price, tends toward keeping business fluid. Jobbers are able to protect their future requirements. Producers are sure of a market for their crops. ”

“ Since exchange quotations for refined sugar futures are net cash ex-exchange-licensed warehouse, Chicago, while refiners' quotations are f.o.b. refinery, less 2% for cash, it is obvious that there must be a difference between refiners' prices and exchange quotations.
It is equally obvious that the differential should approximate the freight rate between Chicago and the Seaboard, where the refiners are located, with allowance also for the cash discount. When the markets are in line such is the case. Conversely, when the differential is higher or lower, the markets are out of line. ”

“ The time to buy actual sugar is generally when the market becomes strong and an advance in the price of the actual commodity seems imminent; but the time to buy sugar futures is before the strength develops. The future market invariably discounts declines and anticipates advances. ”

“ The enlightened man works with Time as an impartial, exacting, inevitable power for his own good or ill. He shapes his actions and enlists the services of Time to prevent catastrophe on the one hand, and to enforce prosperity and happiness on the other. ”

“ Although Chicago is the delivery point in all Exchange contracts for refined sugar, it should be plainly understood that the Exchange is for anyone, anywhere. Whether located in Chicago, or in Rochester, Baltimore, New York or even San Francisco, a jobber can advantageously use the Exchange. ”

“ Assume that you have contracted to deliver sugar to a manufacturer or to any customer at a definite date and a specified price, without buying sugar to cover your requirements. If the price of sugar is favorable when you deliver it, you are fortunate and net a profit. ”

“ You sell sugar futures although you do not own any. You actually contract to deliver an amount of sugar during a specified future month at a specified price.
Eventually, you must either buy and deliver actual sugar to carry out this contract, or you must buy another contract for futures to cancel your short sale. This is known as a "covering" operation, and the cancelling of one by the other takes place automatically through the channels of the Exchange.
From the jobber's point of view, the operation of hedging has three outstanding purposes. He may hedge:
1. ”

“ As business has become more and more complicated, the time element has become larger and larger. The time element as we know it does not exist in simple barter—a man weaves a piece of cloth and exchanges it for a bushel of corn: time is of no account in the transaction. ”

“ In such a case, if these advance orders called for a sufficient volume, and provided Exchange prices were favorable, you could take care of your trade's future requirements at a fixed price, without yourself taking a speculative position. We also believe that buyers making these arrangements with any of their trade would be justified in requesting the same proportionate marginal protection which it is necessary for jobbers themselves to give the seller on the Exchange. ”

“ A single brokerage house becomes thoroughly acquainted with the client's business and personnel, with the result that the two organizations work in harmony virtually as partners, confusion and misunderstandings are avoided, quicker and more advantageous transactions are made possible. ”

“ The Seller shall have the right to deliver Foreign Cane Standard Fine Granulated Sugar in fulfillment of this contract by making an allowance to the Buyer of 25¢ per 100 lbs., and foreign beet standard fine granulated sugar by making an allowance of 45¢ per 100 lbs., provided such sugars comply with the Types adopted as Standard by the New York Coffee and Sugar Exchange, Inc., and all duties have been paid thereon. ”

“ Buying of Sugar Futures
Refiners do not make a practice of taking orders more than thirty days in advance of actual delivery—but there are obviously times when it is advisable to cover one's requirements for a longer period. A jobber may do this on the Exchange where he will always find a seller at some price for the quantity he desires.
This privilege is particularly valuable to:
1. ”