Trade Nivesh The Use

Theoretically, farmers could use oil price futures to lock in low fuel prices, i.e. going long on oil when oil prices are low. When oil prices rise, and in turn the harvesting costs affected by oil prices rise, the farmer gains money to compensate for those increased costs, the opposite happens for lower oil prices. It depends on how vulnerable a farmer is to fuel costs.

So futures are a handy tool if you need to guarantee a certain price and keep your expense from being so volatile from season to season. Doug Reynolds is a professor of Economics at the University of Alaska Fairbanks’ School of Management. He can be contacted at dbreynolds@alaska.edu. This column is brought to you as a public service by the UAF Community and Technical College department of Applied Business and Accounting.