3. To establish and limit a loss on an unfavorable purchase of
actual sugar.
HEDGING _to protect a normal jobbing profit by eliminating the
probability of a speculative loss or gain_.
This operation is particularly useful to jobbers with whom conditions
are such that they desire to be assured that their cost will be at
about the market price at the time they dispose of their sugar,
regardless of whether the market be higher or lower.
Although there are times when any jobber, no matter where located, will
find this a useful transaction, it is obvious that many buyers will not
wish to use the market in this way unless they feel it will decline.
But it is particularly of advantage to a jobber located in markets
necessitating a delay of from one day to several weeks in transit.
For instance, on a certain day in April, two jobbers bought their usual
quantity of sugar. One was located in Syracuse, the other in New York.
Two days following the purchase, the market broke half a cent per
pound. In view of the fact that his sugars were still in transit when
the market declined, the Syracuse buyer was obliged to sustain this
entire loss, in order to meet competition. On the other hand, because
he received and distributed the sugar before the market broke, the New
York jobber was able not only to avoid a loss, but make his regular
profit.