HGCA Knowledge Centre

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

AAPS - Arable Area Payment Scheme - replaced by Single Payment Scheme.

ABANDONED OPTIONS - This refers to the situation where an option is not exercised or sold and is simply left to expire.

ACCS - Assured Combinable Crops Scheme.

ACP - US Agricultural Conservation Program.

AIC - Agricultural Industries Confederation.

AGRICULTURAL TRADE OFFICE (ATO) - The US Agricultural Trade Act of 1978 directed the establishment of trade offices in major centres of commerce throughout the world. Agricultural trade offices work to develop, maintain and expand international markets for U.S. agricultural commodities by serving as centres for export sales promotions and contact points for importers seeking to buy farm products from the United States.

AMERICAN OPTION - This is an option that may be capable of exercise at any time leading up to the expiration date.

APPEAL BOARD - Second stage of the Arbitration process whereby a dissatisfied party may appeal against a first instance award of arbitration. Effectively a new hearing where new evidence and claims may be entered and legal representation may be applied.

ARBITRAGE - Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in the same or different markets or time periods with the intention of profiting from a discrepancy in prices.

ARBITRATION - A means of commercial dispute resolution where a decision is imposed by a sole arbitrator or a tribunal by way of a formal award. The terms of that award have to be complied with.

ASA - American Soybean Association

AT THE MONEY OPTION - This refers to an option where the strike price is equal to the present market value of the underlying goods.

AVERAGING - Sometimes when a price is moving against a trader, he will continue to buy the contract in question as the price falls. This will give him a lower average price and therefore a lower exit price at which he can make a profit. By averaging down, it might be possible to close out the first contracts in the series at a loss but overall make a profit on the book of options.

BASE ACREAGE - A farm's crop-specific acreage of wheat, feed grains, upland cotton, or rice eligible to enrol in commodity programs under previous legislation, and subsequently eligible for production flexibility contracts under the FAIR Act of 1996.

BASE PERIOD PRICE - The average price for an item in a specified time period used as a base for an index.

BASIS CONTRACT - A forward cash contract that establishes the basis, quantity and delivery period for a commodity to be delivered at a future date. The final price is established when the holder of the contract, at some later date prior to delivery, locks in the futures price at that time.

BASIS - The relationship between cash price and the related futures price. It defines the terms of sale or purchase at a local point relative to futures.

BCE - British Cereal Exports.

BEAR MARKET - Declining, sluggish, depressed markets.

BEAR SPREAD - The sale of a Call option, with a simultaneous purchase of another Call option with a higher strike price OR the purchase of a Put option with a simultaneous sale of a Put option with a lower strike price.

BEAR - Downward price trend or market opinion.

BEARISH - Conditions exist that suggest lower prices are warranted are said to be "bearish."

BID - An offer to buy at a quoted price.

BILATERAL TRADE AGREEMENT - A trade agreement between any two countries.

BIODIVERSITY - In general, the variety and variation among plants, animals, and micro organisms, and among their ecosystems.

BIODIESEL - A renewable fuel that can be manufactured from vegetable oils or recycled vegetable oils.

BIOETHANOL - An alcohol-based alternative fuel produced by fermenting sugar and starch crops that have been converted into simple sugars.

BIOMASS - The generic term for any living matter that can be converted into usable energy through biological or chemical processes. It encompasses feed stocks such as agricultural crops and their residues, animal wastes, wood, wood residues and grasses, and municipal wastes.

BIOTECHNOLOGY - The means or ways of manipulating life forms (organisms) to provide desirable products for man's use.

BLACK SCHOLES PRICING MODEL - A mathematical method used to calculate the theoretical value of an option based on the goods price, the strike price, interest rates, time value and volatility.

BLUE BOX - Direct payments, under the definition of 'production-limiting' measures as defined in Article 6 of the Uruguay Round Agreement on Agriculture, that are not subject to the commitment to reduce domestic support.

BREACH OF CONTRACT - A term used when a party to a contract fails to perform their contractual obligations or a consignment of goods fails to meet the contractual specification.

BREAK - A rapid or sharp decline.

BROKER - A person executing buy and sell orders for customers for a fee or commission.

BROKERAGE - The fee charged by a broker for execution of transactions as instructed by the customer. The fee may be a percentage of the transaction value or a fixed amount.

BULL MARKET - A market that is rising.

BULL SPREAD - The sale of a Put option, with a simultaneous purchase of another Put option with a lower strike price. OR the purchase of a Call option with a simultaneous sale of a Call option with a higher strike price.

BULL - Upward price trend or market opinion.

BULLISH - Conditions or events that suggest higher prices are warranted are said to be bullish.

BUSHEL - Unit of measurement used in the US (35.56 bushels of wheat = 1000kg).

BUY IN - Buying to cover a previous sale or short position.

BUYER/LONG HEDGE - A hedging transaction of buying futures or call options to protect against a possible price increase in the cost of a commodity.

C&F - Cost and Freight.

CABLE RATE - US Dollar / Sterling exchange rate.

CALL - An option which gives the buyer the right but not the obligation to buy an underlying asset (commodity futures contract) at an agreed upon price (strike price) within a specified period of time.

CANADIAN WHEAT BOARD (CWB) - Quasi-governmental agency that controls wheat trade in Canada.

CANOLA - Oilseed Rape (Canada).

CARRIAGE PAID TO (CPT) - The delivery of goods to the named place of destination at the sellers expense.

CARRY - The cost of storage space, insurance, and finance charges incurred by holding the commodity from one month to the next.

CARRYING CAPACITY - The maximum stocking rate for livestock possible without damaging vegetation or related resources.

CARRYING CHARGES - Cost of storing a physical commodity (i.e. grain) over a period of time. Costs include insurance, storage and interest.

CARRYOVER - The supply of a farm commodity not yet used at the end of a marketing year and carried over into the next year.

CARTEL - An alliance or arrangement among industrial or commercial enterprises or nations aimed at limiting competition or exercising monopoly power in a market.

CASH PRICE - The price in the cash market for the physical or actual commodity.

CBOT - Chicago Board Of Trade.

CEEC - Central and Eastern European Countries.

CEREAL SEASON YEAR - The start of July to the following June end.

CFTC - The Commodity Futures Trading Commission, the US Federal Regulatory Agency which regulates commodity futures and option markets in the United States.

CHANGE - The price difference between the settlement price on a given and the previous trading day.

CHARTERPARTY - A contract between a ship owner and a shipper for the sea freight of goods

CHICAGO BOARD OF TRADE (CBOT) - Leading commodity exchange in the U.S.

CIF - Cost Insurance & Freight.

CIFFO - Cost, Insurance, Freight, Free-Out.

CLEARING HOUSE - A separate division or corporation of a commodity exchange through which all transactions executed on the floor of the exchange are settled. The clearing house assures proper conduct of the exchange's delivery procedures and the adequate financing of the trading (margining) protecting both parties from financial loss.

CLEARING MEMBER - A member of the clearing house or association. All trades by non-clearing members must be registered and eventually settled through a clearing member.

CLEARING - The procedure by which the clearing house of an exchange acts as the buyer to every seller of a futures contract and the seller to every buyer.

CLOSE - A point in time officially designated by the exchange at the end of the trading session when trading must cease.

COCERAL - Comité du Commerce des céréales. The official representation of the cereals, feedstuffs, oilseeds, olive oil, oils and fats and agri-supply trade in the EU.

COMMERCIAL - Any company that merchandises or processes cash grain and other commodities.

COMMISSION HOUSE - A brokerage company that buys and sells futures on behalf of its customers. The company's income is generated by the commission that it charges its customers.

COMMISSION - Futures transaction fee.

COMMODITY CREDIT CORPORATION (CCC) - U.S. government-owned and operated corporation responsible for financing major USDA programs, including price supports, domestic and foreign food assistance and export sales programs. Maintains stocks of commodities obtained through various price support programs.

COMMON AGRICULTURAL POLICY (CAP) - A set of regulations by which members of the European Union seek to merge their individual agricultural programs into a unified effort to promote regional agricultural development, fair and rising standards of living for the farm population, stable agricultural markets, increased agricultural productivity and methods of dealing with food supply security.

COMMON EXTERNAL TARIFF (CXT) - A tariff rate applied by a regional grouping of countries as a unit. For example, the European Community allows free trade in most agricultural commodities among member countries, but applies common external tariffs against many farm products imported from non- member or 'third' countries.

COMPETITIVE ADVANTAGE - A situation in which one country, region, or producer can produce a particular commodity more cheaply than another country, region or producer.

CONCENTRATION (ECONOMIC) - A measure of the degree to which a few large firms dominate total sales, production, or capacity within an industry or market. The concern is that the more concentrated an industry, the greater the likelihood of price and market manipulation.

CONCILIATION - A means of dispute resolution where a third party neutral chosen by the parties attempts to bring the parties to an agreement by using his trade knowledge. A non-binding process.

CONSUMER SUBSIDY EQUIVALENT (CSE) - A measure of the value of monetary transfers to consumers resulting from agricultural policies in a given year.

CONTRACT - Agreement between buyer and seller to trade grain. "Ex-farm fixed price contracts" indicate a known price and quantity of grain for a certain delivery period. An "open price contract" means that the price will not be known until the delivery date. A "delivered contract" includes the cost of delivery to the buyer.

CONTRACT GRADES - Those grades of a commodity that have been approved by an exchange as deliverable in settlement of a short futures position.

CONTRACT MONTH - The month in which delivery is to be made in accordance with a futures contract.

COST AND FREIGHT (CFR) - Seller provides the cargo, covers the loading costs and charters and ocean vessel for a specific destination. Buyer pays for discharge.

COST, INSURANCE AND FREIGHT (CIF) - Terms of sale whereby the seller's price includes the costs of the goods being sold and all transportation charges, including insurance expenses, to the named point of destination. The seller's liability for risk ends after the goods have been shipped and the buyer has obtained a bill of lading or equivalent document proving such shipment. The buyer's liability begins when the goods have arrived at the destination point.

COST/BENEFIT ANALYSIS - A quantitative and sometimes qualitative evaluation of the costs which would be incurred by some action (such as implementing an environmental regulation) versus the overall benefits to society of the proposed action.

COUNTERVAILING DUTY - A charge levied on an imported article to offset the unfair price advantage it holds due to a subsidy paid to producers or exporters by the government of the exporting country.

COVERED CALL OPTION - A sale of a call option where the writer owns the individual goods on which the option is sold. (eg short calls, long futures).

COVERED PUT OPTION - A sale of a Put option where the writer has gone short of the goods on which the option is sold. (eg short puts, short futures).

CROP INSURANCE - A multiperil crop insurance program available for a fee (premium) to the producers of most crops as protection against significant yield losses from natural hazards.

CROP ROTATION - The growing of different crops, in recurring succession, on the same land in contrast to monoculture cropping. Rotation usually is done to replenish soil fertility and to reduce pest populations in order to increase the potential for high levels of production in future years.

CROSS-HEDGE - Hedging a commodity's cash market risk in a futures contract of a different commodity which has some price relationship to that commodity.

CURRENT DELIVERY MONTH - The nearby futures contract which matures and becomes deliverable during that present month. This is also referred to as a "spot month."

CUSTOMS UNION - An agreement between two or more countries to remove trade barriers between each other and to establish common tariff and nontariff policies with respect to other countries. The European Community (EC) of the European Union (EU) is the best know customs union.

CWRS - Canadian Western Red Spring.

DAMAGES - The sum of money arising from a Breach of Contract where one party has to buy or sell goods on a current market and there is a price differential between that value and the contract price, and the innocent party seeks payment of that differential from the party in Breach.

DAQ - Delivered Alongside Quay.

DARD - Department of Agriculture and Rural Development (for Northern Ireland).

DAY ORDER - An order that exists with a broker to buy or sell a futures contract that automatically expires at the end of each day's trading session if not fulfilled. Many orders given to futures brokers will be treated as day orders only unless otherwise specified.

DECAY - The value of an option declines with time, notwithstanding other influences on its pricing. This is known as time decay and is pro rata to the number of days remaining to expiry.

DEFAULT - A term used when a party to a contract fails to perform their contractual obligations or a consignment of goods fails to meet the contractual specification.

DEFERRED FUTURES - Of the futures contracts currently traded those that expire in the more distant months. Sometimes referred to as "forward" months.

DEFICIENCY PAYMENT - In the United States, a direct payment to participating producers of feed grains, wheat, rice and cotton by USDA's Commodity Credit Corporation (CCC), equal to the difference between CCC's target price and the higher of either the market price or the load rate, whichever difference is less.

DEFRA - Department for Environmental, Food and Rural Affairs.

DELIVERED AT FRONTIER (DAF) - The delivery of the goods at a specific point on the frontier at the seller's expense.

DELIVERED EX-QUAY - The delivery of the goods to the quay at destination at seller's expense.

DELIVERY - The transfer of a cash commodity from the seller of a futures contract to the buyer of a futures contract. Only about 1% of all futures contracts end in delivery. Instead, most futures contracts are offset prior to delivery time of the expiring futures contract.

DELIVERY DUTY PAID - The seller is responsible for most of the expenses and the delivery of goods to the final point at destination.

DELIVERY DUTY UNPAID - The delivery of goods and the cargo insurance to the final point at destination at the seller's expense.

DELIVERY POINTS - Locations designated by the commodity exchange where stocks of a commodity, as described by a futures contract, may be delivered to satisfy a short futures position.

DELIVERY PRICE - The price established by the clearing house at which deliveries on futures contracts will be made when delivery has been initiated.

DELTA - The price of an option changes as a function of the price change of the underlying instrument. For example, an 'At-the-Money' option has a Delta of 0.5 (50%) and will move 0.5 units in price for every one unit movement in the underlying goods.

DNS - Dark Northern Spring (wheat).

EFTA - European Free Trade Area.

ELASTICITY - Refers to the sensitivity of the quantity supplied or demanded of a commodity as the price of that commodity changes. A commodity demand or supply that is elastic will change in response to price movements while an inelastic demand or supply is relatively unresponsive to changes in price.

ELS - The Entry Level Stewardship aims to encourage large numbers of farmers and land managers across England to deliver simple yet effective environmental management that goes beyond the Single Payment Scheme (SPS) requirement to maintain land in Good Agricultural and Environmental Condition (GAEC).

EMERGING MARKETS OFFICE (EMO) - Provides grants for market development and promotion programs aimed at emerging markets and transition economies.

EUROPEAN OPTION - This is an option that may only be exercised at the expiration date.

EX WORKS (EXW) - Under EXW, the seller minimises his risk by only making the goods available at his own premises.

EXCESS MARGIN - The amount of equity in a futures account that exceeds original margin requirements. These funds may be withdrawn or used to establish new futures positions.

EXCHANGE FOR PHYSICALS - Exchanging a futures position for a cash position.

EXCHANGE OF FUTURES FOR CASH - A futures transaction made between a buyer of a cash commodity and a seller of a cash commodity at an agreed upon price outside the pit on the floor of the exchange. The buyer of the cash commodity transfers to the seller a set number of futures contracts at the agreed price. This type of transaction is also referred to as an EFP (Exchange for Physical) or AA (Against Actuals).

EXERCISE PRICE - This is the price in an option contract where the buyer of the option may purchase or sell the relevant, underlying instrument during the life of the contract (=STRIKE PRICE).

EXERCISE - To elect to buy or sell an underlying futures contract as defined by an options contract.

EX-FARM PRICE - Price at the farm gate - not including delivery.

EXPIRY DATE - The date on which an options contract expires. The last day an option can be exercised.

EXPORT BRANDS - A new classification system developed by HGCA British Cereal exports in conjunction with the industry for international buyers of UK wheat was launched in November 2004. The ukp and uks wheat export brands make it easy for buyers to understand and purchase UK milling wheat and for growers and the UK supply chain to identify which varieties to grow and market for export. See http://www.hgca.com/exports

EXPORT ENHANCEMENT PROGRAM (EEP) - Enacted by the U.S. Congress in 1984, to counteract unfair subsidies by the EEC; empowers the USDA to subsidise U.S. exports.

EXPORT REFUND - Subsidy in euro per tonne frequently given by the EU to bridge the gap between world and EU cereal prices.

FAQ - FAIR AVERAGE QUALITY. An outmoded term used to express the quality of a consignment of goods measured against an average crop quality for the year of production.

FEED GRAINS - Also know as coarse grains. This category includes corn, sorghum, barley, oats, rye and millet.

FEED WHEAT - Although wheat traditionally is used as food for human consumptions, large amounts of wheat are fed to livestock and poultry, especially in years when prices of lower quality wheat are competitive with those of coarse grains.

FFB - Food From Britain.

FIXED PRICE - A price determined for a specified amount of a given commodity in which both the basis and futures prices have been established or fixed.

FOB - Free On Board (the boat).

FOREIGN EXCHANGE RATE - Foreign exchange is the price you pay in one currency to buy a unit of another currency. If the exchange rate of the Pound is EUR 1.45, this means it costs EUR 1.45 to buy one Pound, or the inverse, £0.69 to buy one Euro.

FORMER SOVIET UNION (FSU) - Countries that used to be part of the old Soviet Union.

FORWARD CONTRACT - A cash transaction where buyer and seller bilaterally agree upon a specified quality and quantity of goods to be delivered at a specified future date.

FOREX - Foreign Exchange (International Currency).

FOSFA - Federation of Oils, Seeds and Fats Associations.

FREE ALONGSIDE SHIP (FAS) - Goods are placed within reach of its loading equipment so that it can load aboard the ship at the seller's expense.

FREE CARRIER (FCA) - The delivery of goods at the specified point at the seller's expense.

FREE ON BOARD (FOB) - The seller's price only includes the cost of the grain up to and including delivery of the goods at the end of the loading spout to an ocean going vessel provided by the buyer at the named port of shipment.

FUNDAMENTAL ANALYSIS - Study of market factors affecting the supply and the demand of a commodity. Such factors include production, imports, domestic usage, exports, spoilage, etc.

FUTURES COMMISSION MERCHANT (FCM) - Individuals, associations, partnerships or corporations registered with a commodity exchange to trade for the public.

FUTURES CONTRACT - Refers to standardised contracts covering the sale of commodities for future delivery on a commodity exchange.

FUTURES EXCHANGE - A market where traders buy and sell futures contracts and options on futures contracts.

FUTURES PRICE - The price determined for a given commodity by auction, open outcry on a futures exchange.

FWAG - Farming and Wildlife Advisory Group.

GAEC - "Good Agricultural and Environmental Condition" - EU requirement for cross compliance.

GAFTA - Grains And Feed Trade Association.

GENERALISED SYSTEM OF PREFERENCES (GSP) - A framework under which developed countries give preferential tariff treatment of manufactured goods imported from certain developing countries. It is one element in a coordinated effort of the industrial trading nations to bring developing countries more fully into the international trading system.

GMO - Genetically Modified Organism.

GROSS NATIONAL PRODUCT (GNP) - A measure of the market value of goods and services produced by the labour and property of a nation. Includes receipts from that nation's business operations in foreign countries, as well as the share of reinvested earnings in foreign affiliates of domestic corporations.

GROSS REGISTER TONNAGE (GRT) - a measurement of internal capacity obtained by multiplying the length, breadth, and height in feet. One register ton equals 100 cubic feet. Gross tonnage comprises all spaces below the tonnage deck and the enclosed spaces above the tonnage deck, less exempted spaces.

HEDGE WITH FUTURES - A position held in the futures market that is equal and opposite to a position held in the cash market so as to minimise the risk of financial loss as a result of an adverse price change.

HEDGERS - A market participant who buys or sells a futures contract for protection against the possibility of a price change in the physical commodity.

HEDGING - Taking a position in a futures market opposite to one's position in the cash market (i.e., as a buyer or seller) in order to minimise price risk. One hedges by buying or selling a futures contract as a temporary substitute for a cash transaction that will occur later (such as the eventual sale of one's crop).

HGCA - Home Grown Cereals Authority.

HIGH - The highest price paid for a particular futures contract on a given day.

HOLDER - Name given to buyer of an option.

HOME - Specific market for parcel of cereal.

HRW - Hard Red Winter (wheat).

IGC - International Grains Council.

IMPORT QUOTA - A set volume of grain or other products that can be imported into a country. Once the quota amount has been reached, an import tariff may be applied to additional imports or imports may be restricted above the quota amount.

IMPORT TARIFF - A tax paid on imports. The tax may be calculated as a percent of the imported product value or as a fixed amount per unit ($/metric ton).

IN THE MONEY OPTION - This refers to an option where the strike price is inside the present market value of the underlying instrument and the option has an immediate value. For example, for a Call where the strike price is below the current market price, or, for a Put where the strike price is above the current market price.

INITIAL MARGIN - Funds deposited by a customer as security at the time a futures market position is established to guarantee contract fulfilment.

INTERNATIONAL MONETARY FUND (IMF) - Established in 1946 to act as the banker of last resort for countries experiencing foreign exchange deficiencies and to monitor currency exchange relationships among nations.

INTERVENTION - A system mangaged by the EU commission which is obliged to buy grain offered from EU growers at a fixed price. The commission managed intervention stores across the EU, and invites tenders for the sale of intervention grain both for the domestic market and exports.

INTRINSIC VALUE - Value of the option if it were exercised and in the money.

KCBT - Kansas City Board of Trade.

LCMAS - London Commodity and Maritime Arbitration Service.

LETTER OF CREDIT (L/C) - An arrangement between a buyer and their bank whereby a seller may be assured of payment against presentation of documents for goods delivered.

LIFFE - London International Financial Futures and Options Exchange.

LIMIT MOVE - A price that has moved the allowable limit as set out in the rules of the futures contract.

LONG HEDGE - Buying a futures contract to protect the purchase of a commodity one is planning to buy.

LONG - The buy side of a futures contract. A promise to take delivery.

LOT - Unit of measurement on the LIFFE cereal futures market (1 Lot = 100 tonnes).

LOW - The lowest price paid for a particular futures contract on a given day.

MAFF - UK Ministry of Agriculture, Fisheries and Food - now defunct - see Defra.

MAGB - Maltsters' Association of Great Britain.

MANCOM - Management Committee meeting held by agricultural Ministries of EU.

MARGIN CALL - A request from a brokerage firm to a customer or from the clearing house to a clearing member to bring account equity up to minimum levels.

MARGIN - The amount of money or collateral deposited by a client with his broker or by a broker to the clearing house for the purpose of insuring performance on an open futures contract or short option position.

MARKET ACCESS PROGRAM (MAP) - In the USA, MAP, previously called the Market Promotion Program or MPP, is administered by the Foreign Agricultural Service and uses funds from the Commodity Credit Corporation. It helps producers, exporters, private companies, and other trade organizations finance promotional activities for U.S. agricultural products.

MARKET ORDER - An order to buy or sell a futures contract at the prevailing price when the order enters the pit.

MARKET PROMOTION PROGRAM (MPP) - A US export promotion program

MATIF - Marché A'Terme International de France (Paris).

MATURITY - Refers to the delivery month of the maturing contract. The period in which the futures contract obligation can be fulfilled by the delivery of the actual commodity.

MBM - Meat and Bonemeal. By-product of meat processing, used as a protein source in livestock rations.

MCA - Monetary Compensation Amount.

MEDIATION - A means of dispute resolution where a mediator seeks to bring the parties to a mutual settlement. The mediator does not suggest or impose settlement terms but acts only as a facilitator. The parties may withdraw from the process if settlement proves impossible and may move to arbitration. An economical, speedy and private means of resolution.

MERCADO COMMUN DEL SUR (MERCOSUR) - A customs union between Argentina, Brazil, Paraguay, and Uruguay, which came into effect on January 1, 1995. Chile and Bolivia have become associate members.

MGE(x) - Minneapolis Grain Exchange.

MLC - Meat and Livestock Commission.

MODEL - A mathematical representation of economic activity or events, eg Black Scholes.

MOST-FAVORED-NATION TREATMENT (MFN) - A commitment that a country will extend to another country the lowest tariff rates it applies to any third country.

NABIM - National Association of British and Irish Millers.

NAEGA - North American Export Grain Association

NEARBYS - The nearest or closest delivery months of a futures market as opposed to the deferred.

NEW YORK CONVENTION - UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (New York 1958). The provision whereby an award of arbitration issued to a successful party in one country may be enforced in the country of the other (unsuccessful) party. Most trading countries are now signatories of the Convention.

NFU - National Farmers Union.

NORTH AMERICAN EXPORT GRAIN ASSOCIATION (NAEGA) - Trade association of the export grain trade - traders, elevators, shippers, etc.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) - Agreement signed between the United States, Canada and Mexico to reduce internal and external trade barriers and promote trade.

NOTICE DAY - Any day on which an intent to deliver on a futures contract may be issued.

OECD - Organisation for Economic Co-operation and Development.

OFFER - An indication of willingness to sell at a given price. The opposite of a bid.

OFFSET - Closes out futures position. Requires transaction opposite of original position. If long, then sell back / if short, then buy back.

ONIC - Office National Interprofessional des Cereales (France).

OPEN INTEREST - The number of contracts that have not been offset or closed by close of business.

OPEN POSITON - A trading position which has not yet been exercised or closed.

OPENING PRICE - The price at which futures contracts were traded at the daily opening.

OPENING - Refers to the beginning of a trading session officially designated by an exchange when transactions of futures contracts can commence.

OPTION - A contract that gives the buyer the right but not the obligation to buy or sell a specified quantity of an underlying asset (futures contract, stock, etc.) at a specific price (strike price) within a specified period of time.

OUT OF THE MONEY OPTION - This refers to an option where the strike price is outside the present market value of the underlying instrument and the option does not have an immediate value. For example, for a Call where the strike price is above the current market price, or, for a Put where the strike price is below the current market price.

PAR - Refers to the current futures price for a standard delivery point and/or grade of a commodity represented by a futures contract that can be delivered at the contract price. Serves as a benchmark upon which to base discounts and/or premiums for varying quality.

PIT - A specially constructed or designated area on the trading floor where trading in a futures contract is conducted. Some exchanges refer to these areas as "rings."

POINT- The minimum price fluctuation of a futures contract.

POSITION - An interest or existing obligation in a market that can be either long (to have bought) or short (to have sold) one or more futures contracts.

PREMIUM - The amount of money a buyer of an option must pay the option writer for the rights granted under the option.

PUT - An option which gives the buyer the right but not the obligation to sell an underlying asset (commodity futures contract, stocks, etc.) at an agreed-upon price (strike price) within a specified period of time.

QUINTAL - Unit of measurement for French cereals (1 quintal = 100kg).

RANGE - The difference between the highest and lowest prices of a futures contract price within a specified time period, i.e., weekly range, daily range.

SAFEX - South African Futures Exchange.

SANITARY PHYTO-SANITARY STANDARDS (SPS) - Standards that countries apply to imported and exported (as well as domestically produced) food and feed products.

SELLER'S MARKET - A condition in a marketplace where sellers are hard to find or the goods or commodity are scarce. Therefore, sellers can draw prices higher.

SELLING/SHORT HEDGE - Selling futures contracts or buying put options to protect against a possible decrease in the price of a given commodity.

SETTLEMENT - The last price paid for a given futures contract on a given day. When futures price close within a price range, the settlement price represents an average of prices that occurred when the market closed.

SETTLEMENT PRICE - The daily price used by clearing houses to clear all trades and settle all accounts between clearing members of each contract month.

SFX - Sydney Futures Exchange.

SHORT - An individual who has sold goods that he does not hold is said to be short.

SHORT HEDGE - Selling futures to protect the sale price of a commodity one is planning to sell.

SPECULATION - Assumption of risk.

SPECULATOR - An individual who trades in stocks and/or futures markets with the objective of realising a profit by successfully anticipating price changes. A necessary player in a futures market as the speculator provides liquidity.

SPOT MARKET - A commodity exchange that trades in physical commodities, available for immediate delivery upon sale. Also called cash market.

SPREAD - The word "spread" refers to the price relationship or difference between two futures contract month prices for the same or related commodity.

SPS - Single Payment Scheme. This replaces the Arable Area Payments Scheme.

SRW - Soft Red Winter (wheat).

STRADDLE - A strategy whereby a Put and a Call option on the same underlying instrument are traded, with the on the same expiration date and the same exercise price.

STRANGLE - A strategy whereby a Put and a Call option on the same underlying instrument are traded with the same expiration date but different exercise prices.

STRIKE PRICE - The price at which the BUYER of a put (call) can sell (purchase) the underlying asset during the life of the option.

SWITCH - Offsetting a futures position in one month while simultaneously establishing a similar position in another delivery month of the same commodity.

TARGET PRICE - Commodity price target level established by US law for wheat, feed grains, rice and cotton. If the market price falls below the target price, participating producers receive from USDA deficiency payments, which represent the difference between the market price and either the target price of the loan rate, whichever is higher.

TECHNICAL ANALYSIS - The study of price changes, rates of change, averages, volume, and open interest of futures markets and trends.

TICK - Minimum price movement on a futures and options contract.

TIME VALUE - An option value, if the market price for the underlying instrument is unchanged, decreases over time. The time value component of the option price (or premium) reflects the value placed by the market on the amount of time remaining to expiry. It is an important component in the pricing of options.

TRADER - A merchant involved in the merchandising of a cash commodity or a speculator that trades for his/her own account.

UKASTA - United Kingdom Agricultural Supply Trade Association - replaced by AIC.

UNADJUSTED BASIS - The simple difference between the local cash price and a futures price in another currency. If the local cash price is $3.00 Cdn and the US futures is $2.50 the "unadjusted basis" is $0.50 OVER.

UNDERLYING COMMODITY - The actual or cash commodity that a futures contract is based upon which must be accepted or delivered when delivery against the contract is made.

USDA - United States Department of Agriculture.

USGC - United States Grains Council

VARIATION MARGIN - Additional margin deposited as a result of greater market volatility.

VOLATILITY - The actual, or expected, rate of fluctuation in the price of a financial instrument. It is an important component in the pricing of options.

VOLUME - Contracts traded on a given day.

WASTING ASSET - All option contracts are wasting assets in that their value declines with time. This may be compared with a lease on a house or flat whereby, as time goes on, the value of that lease reduces, all other things being equal.

WOAD - Welsh Office Agriculture Department.

WORLD TRADE ORGANIZATION (WTO) - Established in 1995, the WTO is the successor to the General Agreement on Tariffs and Trade. The organization strives to set legal ground rules for multilateral trade through agreements among its member states.

WRITER - The issuer, grantor, underwriter of an option contract.