[RustyConsul]

that was my initial thought as well, but you are limited by the availability of financial instruments as you move up the chain to inputs. Outputs are easy to craft instruments around, but inputs are what a business is.

[colechristensen]

Instead of financial instruments they are actual contracts for purchasing a commodity in the future from a local purveyor.

[simtel20]

Without a futures market, you don't get futures, you get forwards, don't you? Forwards don't have enforcement for when the seller goes bankrupt, which leaves the buyer out any money paid in the forward contract and needing to find another supply at market price. That's my understanding, at least.

[c_o_n_v_e_x]

>Without a futures market, you don't get futures, you get forwards, don't you? Forwards don't have enforcement for when the seller goes bankrupt, which leaves the buyer out any money paid in the forward contract and needing to find another supply at market price. That's my understanding, at least.

Correct. You have an over the counter market with different derivatives.

> Forwards don't have enforcement for when the seller goes bankrupt, which leaves the buyer out any money paid in the forward contract and needing to find another supply at market price. That's my understanding, at least.

You're referring to counter party risk. A futures exchange seeks to eliminate this type of risk with daily settlement of positions, margins, etc.

[colechristensen]

Calling them forwards implies that they are tradable securities.

I’m talking about going to the local farmers coop and purchasing next years fertilizer, fuel, etc. months in advance for a set price to be paid and delivered in the future.

When you sell your outputs it’s a good idea to buy your inputs at the same time. The outputs are often exchange traded commodities, the inputs are often contract purchases with local dealers although you can also hedge with appropriate exchange traded commodities.

[c_o_n_v_e_x]

There are futures to hedge inputs, especially for farming:

- Diesel for tractors

- Fertilizers

- The weather itself

- interest rates

- real estate

AFAIK the only inputs without derivatives are labor cost and pesticides.

[RustyConsul]

A.) you are expecting farmers to be quants, B.) There are 10000 more inputs to farming than what you described. Labor being a major one.

Financier: "Well Jim, I know you were focused on digging the irrigation for your farm but with 'Free Money' in the economy, valuations for real estate and other commodities were going to rise. The Delta's on your futures were all out of wack!" Jim: "What's a delta?"