# Explain commodities futures trading to me like I'm a retard

**URL:** <https://boards.straightdope.com/t/explain-commodities-futures-trading-to-me-like-im-a-retard/600020>\
**Category:** Factual Questions\
**Created:** [October 18, 2011, 8:33am UTC](https://boards.straightdope.com/t/explain-commodities-futures-trading-to-me-like-im-a-retard/600020 "2011-10-18T08:33:34Z")\
**Posts on this page:** 2\
**Page:** 3

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**Author:** ![Triskadecamus](https://avatars.discourse-cdn.com/v4/letter/t/b19c9b/32.png) [@Triskadecamus](https://boards.straightdope.com/u/Triskadecamus)\
**Post date:** [October 19, 2011, 11:33pm UTC](https://boards.straightdope.com/t/explain-commodities-futures-trading-to-me-like-im-a-retard/600020/41 "2011-10-19T23:33:52Z")

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Five Guys, the restaurant folks, get bags of US #1 Idaho Potatoes with the name of the farm owner on them. You can contract for what you want. Generic contracts for commodities won’t have such specifications, nor are such contracts widely traded. But a whole lot of apples get sold, many such contracts will include type of apple, and most produce is sold with contracts specifying minimum standards, usually, in the United States that will be USDA specific standards for that produce.

Tris

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**Author:** ![leahcim](https://avatars.discourse-cdn.com/v4/letter/l/b4bc9f/32.png) [@leahcim](https://boards.straightdope.com/u/leahcim)\
**Post date:** [October 20, 2011, 12:34am UTC](https://boards.straightdope.com/t/explain-commodities-futures-trading-to-me-like-im-a-retard/600020/42 "2011-10-20T00:34:26Z")

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> [@Shalmanese](#):
>
> Let’s say I’m a manufacturer making frozen apple pies and so I buy a futures contract for 10 tons of apples to be delivered to me on Dec 1st for $10,000. Do I get a say in what types of apples I get? Do I know what farms they come from? What if some of them are rotten or underripe? What if some were sprayed with a pesticide I don’t want going into my pies?
> 
> It seems hard to square the fungible nature of contracts with the diversity of agricultural produce.

I don’t think there are futures available for apples, probably because of the amount of variability involved with apples. But as **Trom** points out, if there was one, it would have strict conditions on the type/quality of apples that can be delivered.

But even if you don’t like the type of apples specified in the (hypothetical) futures contract, you can still use it for hedging. You can buy futures for the standard apple contract, sell them for cash when you need apples, and use the cash to buy the kind of apples you want. If the prices of “the kind of apples you want” and “the contract apples” are well correlated, you’ve effectively locked in your price for the kind of apples you want.

As a real life example, I know at least a couple of airlines hedge the price of jet fuel with crude oil futures. Crude oil is not jet fuel, and the airline would never want to take delivery of crude oil, but the price of crude oil and jet fuel correlate well enough that if the price of jet fuel spikes, the price of crude oil probably also spiked and the airline can sell those futures to offset its additional cost.

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