Sugar Buying for Jobbers by B. W. Dyer
As an expert book reviewer, I present an in-depth summary and analysis of B. W. Dyer’s critical early guide to minimizing commercial uncertainty, About Sugar Buying for Jobbers. This essential 1921 booklet outlines how wholesale sugar buyers can transform the speculative nature of their business into a calculated endeavor by utilizing the then-new refined sugar futures market.
Who May Benefit from the Book
- Jobbers who sell sugar.
- Businesses located far from refiners.
- Large jobbers operating branch houses.
- Experienced exchange operators seeking refined sugar context.
- Manufacturing customers setting fixed prices.
Top 3 Key Insights
- Time is the risk accelerator: The time elapsed between purchasing and selling sugar increases price uncertainty, a factor magnified for large or distant jobbers.
- Exchanges neutralize speculation: Futures markets provide essential “machinery” to shift destructive speculative risks from the jobber to professional risk-takers.
- Hedging secures normal profit: By selling futures equal to actual sugar inventory, jobbers eliminate speculative gains or losses, ensuring their sugar cost aligns with the market price at delivery.
4 More Lessons and Takeaways
- Exchanges foster stabilization by providing a common market place where supply, demand, and prices become instantly known to a large group.
- The exchange helps keep business fluid, allowing jobbers to protect future requirements and facilitating crop financing for producers.
- Successful exchange use depends on choosing a financially strong broker who provides expert advice and ensures contract fulfillment.
- Jobbers should exercise discreet use of the Exchange, utilizing the market primarily when quotations are favorably “out of line” with the actual commodity price.
The Book in 1 Sentence
This guide arms sugar jobbers with the strategies for trading in refined sugar futures to neutralize market volatility, manage the time element risk, and guarantee sound business profits.
The Book Summary in 1 Minute
About Sugar Buying for Jobbers addresses the fundamental problem of Time, which introduces uncertainty and magnified risks, especially for larger sugar jobbers or those remote from supplies. The inauguration of refined sugar futures trading on the New York Coffee and Sugar Exchange, Inc., in May 1921 offers a vital mechanism to shift this speculation. The core practice is hedging, which involves simultaneously buying actual sugar and selling futures to ensure that cost equals the market price at the time of sale, protecting normal jobbing profits. Furthermore, jobbers can buy futures to cover requirements beyond the short period refiners allow, or to lock in prices for customers who need guaranteed future costs. While Chicago is the delivery point, most operations involve closing out contracts and purchasing actual sugar, making the delivery point mostly immaterial. The book emphasizes that protection is relative, not absolute, and success requires partnering with a financially stable and reliable broker.
The 1 Completely Unique Aspect
This text serves as a primary historical document chronicling the immediate financial and commercial response to the inauguration of the Refined Sugar Futures market on the New York Coffee and Sugar Exchange on May 2, 1921, outlining its advantages to jobbers in the context of the 1920 sugar price abnormalities.
In-Depth Chapter-wise Book Summary
Chapter 1: Time, the Croupier of Uncertainty
“Time is the tap-root of most business uncertainties.”
In this introductory chapter, Dyer posits that Time is the presiding force over business, acting like a croupier at a vast roulette table, introducing risks like floods, wars, pestilence, or prosperity. While simple barter or local transactions may render time negligible, the increasing complication of modern business, especially for large jobbers or those far from supplies requiring weeks in transit, makes the time element vitally important. For these large operations, purchasing risks increase at a greater ratio than the business itself expands. Since jobbers must sell to meet competition regardless of their internal cost, any delay or unforeseen event can force them to sustain losses. Dyer argues that while the unenlightened man fears Time as a bugaboo, the enlightened businessperson seeks machinery to control this inevitable power and prevent catastrophe. This machinery, which reduces the speculative element inherent in every purchase of actual sugar, is the Exchange.
Chapter Key Points
- Time is the main source of business uncertainty.
- Larger jobbers face disproportionately greater risks.
- Exchange operations provide machinery to reduce uncertainty.
Chapter 2: The New Machinery for Risk Reduction
“Exchanges operate to take the gamble out of business.”
Chapter 2 introduces the New York Coffee and Sugar Exchange, Inc., which inaugurated trading in refined sugar futures on May 2, 1921, extending the protective mechanisms previously available only for commodities like raw sugar, wheat, and cotton. The Exchange serves as a centralized market place where prices are determined by supply and demand, stabilizing fluctuations because market conditions become common knowledge instantly across the country. This stabilization allows sellers to operate on smaller margins and frees competition from complications. Dyer suggests that a general use of refined sugar exchange trading in 1920 might have prevented the abnormal advance in prices and the associated misfortune. By providing a mechanism to shift speculative risks from the jobber to those who specialize in assuming them, the Exchange helps maintain business on a sound, fluid basis, allowing jobbers to protect future requirements and producers to secure a market for crops. However, the protection afforded is relative, not absolute, as the Exchange market, though following the actual market closely, is subject to fluctuations that constantly throw the two “out of line”. Jobbers should leverage the Exchange when quotations are favorably out of line.
Chapter Key Points
- Refined sugar futures trading began on May 2, 1921.
- Exchanges stabilize prices by centralizing market knowledge.
- Use the Exchange when prices are “favorably out of line”.
Chapter 3: Hedging to Insure Normal Jobbing Profit
“It is therefore evident that the selling of futures may be a transaction the sole purpose of which is to eliminate speculation from a jobber’s business.”
Dyer explains that a “hedge” is a protection achieved by owning actual sugar and simultaneously “selling short” (selling futures) in the same amount. The fundamental purpose of this hedge is to eliminate the probability of speculative profit or loss due to market fluctuations, ensuring the jobber achieves their normal jobbing profit. This operation is particularly valuable for jobbers located far from the source of supplies, where sugars may be in transit for weeks. The goal is to figure the sugar cost at about the market price at the time the sugar is sold or delivered. Using an illustrative example (Chart 1), Dyer demonstrates that if a jobber buys actual sugar at 6.00 and hedges by selling futures at 6.00: if the market declines to 4.00, the 2.00 profit from covering the hedge cancels the loss on the actual sugar, making the net cost 4.00. If the market advances to 8.00, the 2.00 loss on covering the hedge is added to the 6.00 purchase price, making the net cost 8.00. In both cases, the cost equals the prevailing market price, successfully foregoing a speculative gain or loss in favor of a fixed jobbing profit.
Chapter Key Points
- Hedging involves selling futures against actual sugar ownership.
- Goal is to assure cost is at market price upon delivery/sale.
- Hedging offsets market gains or losses to secure normal profits.
Chapter 4: Using Futures to Preserve Gains or Limit Losses
“By hedging he can limit that loss to 2¢ a pound, even though the market goes still lower.”
This chapter details two crucial applications of hedging after the initial purchase has been made: protecting a favorable gain and limiting an unfavorable loss. In either case, the operation is relative. If a jobber buys actual sugar at 6.00 and the price advances to 8.00, they have a theoretical gain. By hedging (selling futures at 8.00), they preserve this 2.00 favorable position. If the market later declines to 6.00, the 2.00 hedging profit brings the actual sugar cost down to 4.00, which is 2.00 under the market, achieving the protection objective. Conversely, if a jobber buys at 6.00 and the market declines to 5.00 (a 1.00 loss), they can hedge by selling futures at 5.00 to limit the loss to 1.00. Even if the market drops further to 4.00, the 1.00 profit on the hedge brings the sugar cost to 5.00, meaning the jobber limited their loss to 1.00 above the market price.
Chapter Key Points
- Hedging can be used after initial purchase to react to price movement.
- Selling futures protects a price gain against subsequent declines.
- Selling futures limits a loss against potential further market drops.
Chapter 5: Buying Futures to Anticipate Requirements
“A jobber must anticipate the market in order to take full advantage of it, and in this connection it should be borne in mind that the Sugar Exchange… usually anticipates either favorable or unfavorable developments in the market for the actual commodity.”
While refiners typically limit advance orders to thirty days, the Exchange allows jobbers to cover requirements for longer periods, always guaranteeing a seller at some price. This is critical for jobbers who anticipate a rising market but cannot secure adequate future supply from refiners. The Exchange market often anticipates advances or declines, necessitating prompt action. If a jobber buys futures at 6.00, feeling the price is low (Chart 4), they can secure that price regardless of later fluctuations. If the market advances to 8.00 when the jobber buys actual sugar, they sell their futures at 8.00 (2.00 profit), canceling out the 2.00 increase in actual sugar cost, achieving a final cost of 6.00. If the market declines to 4.00, the 2.00 loss on the future sale is offset by the 2.00 reduction in the actual sugar cost, maintaining the desired cost of 6.00. The time to buy futures is before market strength develops, as the futures market typically discounts movements.
Chapter Key Points
- Futures buying covers requirements beyond refiners’ 30-day limit.
- The Exchange anticipates market changes, requiring quick decisions.
- Buying futures locks in an anticipated favorable cost.
Chapter 6: Protecting Advance Sales to Customers
“It results in profit insurance for the jobber who is willing to sacrifice the possibility of a speculative gain on advance sales to customers.”
The final practical application of futures trading is protecting profits on advance sales to manufacturing customers who need a fixed sugar cost to determine their own selling prices. Selling sugar for future delivery without pre-determining the cost makes profit a matter of guesswork, subject to market advances. By using the Exchange, jobbers can eliminate this risk. If a jobber contracts to deliver sugar at 6.00 and simultaneously buys futures at 6.00 (Chart 4), they fix their cost. If the market advances to 8.00 when delivery is due, the jobber buys actual sugar at 8.00 but sells their futures for an 8.00 profit, canceling the increased cost and allowing them to deliver the sugar at the pre-determined 6.00 cost with a profit. If the market declines to 4.00, the loss on the futures sale is offset by the cheaper actual sugar purchase, again resulting in a net cost of 6.00. This is thoroughly sound business policy that trades the possibility of speculative gain for profit insurance.
Chapter Key Points
- Futures fix sugar cost for jobbers who make advance customer sales.
- Buying futures secures a specified cost regardless of market rise or fall.
- This operation ensures profit insurance for the jobber.
Chapter 7: Market Parity, Logistics, and Broker Selection
“But your real assurance of protection lies in the character and reliability of your broker.”
This final section addresses the necessary mechanics of using the Exchange. Chicago is the stipulated delivery point for refined sugar futures contracts (800 bags or 80,000 lbs minimum per lot). However, the delivery point is not materially important, as the percentage of actual deliveries taken on exchanges is exceptionally small; the usual procedure is to close out the exchange transaction simultaneously with purchasing actual sugar from refiners.
Crucially, Dyer discusses the difference between the refiners’ quotations (f.o.b. refinery, less 2% for cash) and exchange quotations (net cash ex-exchange-licensed warehouse, Chicago). The markets are “in line” when the differential approximates the freight rate between the Seaboard and Chicago, plus the cash discount. Dyer proposes 57¢ as an arbitrary but safe figure for the normal differential to determine if markets are out of line (e.g., if Refiners’ prices are 6.00, Exchange Quotations should be 6.45 based on 57¢ and 2% calculations).
Finally, the function of the sugar broker is emphasized. While broker prices and commissions are standardized, the value lies in their service, which should include strong financial stability, broad economic knowledge, and acting as an advisor or partner. The client’s contract is only as reliable as the broker’s financial strength and responsibility.
Chapter Key Points
- Chicago is the delivery point, though physical delivery is rare.
- A 57¢ differential (plus cash discount) is suggested to determine market parity.
- Choose a financially stable broker who acts as an expert advisor.
Notable Quotes from the Book
- “Time is the tap-root of most business uncertainties.”
- “He is a fatalist, taking his profits and losses as if they were gifts or blows of Fortune.”
- “Any machinery which might operate to eliminate or reduce this uncertainty or speculative element in a jobber’s business, would, we believe, be welcomed.”
- “Through the common market place provided by an exchange… market conditions and prices become common knowledge almost instantly over the entire country.”
- “It is now admitted that, had exchange trading in refined sugar existed in 1920, a general use of the exchange by all branches of the trade might have prevented, to a considerable extent, the abnormal advance in sugar prices…”
- “Exchanges operate to take the gamble out of business.”
- “But your real assurance of protection lies in the character and reliability of your broker.”
- “Meanwhile the market might have advanced, and, if your order had been declined, you would have had to pay an even higher price for your sugar.”
- “…the Sugar Exchange… usually anticipates either favorable or unfavorable developments in the market for the actual commodity.”
- “This is essentially a ‘playing-safe’ operation. It results in profit insurance for the jobber…”
About the Author
The provided source material identifies B. W. Dyer as the author of About Sugar Buying for Jobbers. The booklet was copyrighted in 1921 by Lamborn & Company, a major financial institution involved in the sugar trade, with headquarters at 132 Front Street, New York. The publication was part of Lamborn & Company’s efforts to introduce jobbers to the advantages of trading in refined sugar futures following the market’s inauguration on May 2, 1921. Dyer’s expertise is evident in the detailed, non-technical explanations of complex hedging and anticipation strategies, suggesting a profound internal knowledge of sugar economics and exchange operations. The sources indicate that Lamborn & Company was highly active in the exchange business, being members of the New York Coffee & Sugar Exchange, Inc., the New York Stock Exchange, and other major commodity boards.
How to Get the Most from the Books
Utilize the illustrative charts to model various hedging scenarios, choose a financially sound broker, and execute exchange operations only when the market is favorably out of line.
Conclusion
About Sugar Buying for Jobbers is a potent and practical treatise aimed at transforming the volatile risks of the sugar jobbing business into manageable costs. B. W. Dyer successfully outlines the mechanics and necessity of using the newly formed refined sugar futures market as a shield against the uncertainties of Time. By detailing three crucial applications of hedging—eliminating speculation, protecting gains, and limiting losses—along with strategies for anticipating future requirements and protecting advance sales, the booklet provides a clear roadmap for achieving “profit insurance”. Ultimately, the core lesson is that intelligent, conservative use of the Exchange, combined with choosing a reliable broker, allows jobbers to stabilize their business and focus on their normal operations rather than succumbing to the whims of market speculation.