Citations
- 65 F. Supp. 2d 740
Full opinion text
Opinion
EASTERBROOK, Circuit Judged
Plaintiffs in these five consolidated actions (Nos. 96 C 2675, 96 C 2741, 96 C 2879, 96 C 2972, and 96 C 5215) are farmers who entered into hedge-to-arrive (hta) contracts with grain merchants (including grain elevators). Under a standard hedge-to-arrive contract the farmer promises to deliver a stated quantity of grain for a price, linked to the price of a futures contract that expires in the delivery month. From the farmer’s perspective, this is a normal forward contract that shifts to the buyer the risk that the market price will fall before delivery (and simultaneously prevents the farmer from taking advantage of rising prices). The merchant takes a short position in a traded grain futures contract expiring in the delivery month, and the position can be calculated so that the return from this contract offsets (that is, hedges) the market risk on the cash crop: if the price of the cash commodity falls, so that the grain merchant is obliged to pay the farmer more than the spot market price on delivery, this loss will be offset by a gain in the futures contract; similarly, if the cash market price rises (so that the merchant gets a bargain on delivery), there will be an offsetting loss on the futures contract. Both the farmer and the grain merchant thus can lock in a particular price. Contracts of this general kind have been used since the early 1980s.
The contracts at issue in these five suits are known as flexible or enhanced hta agreements, because they permit the farmers to defer delivery to any month in which a futures contract expires. When the farmer defers delivery, the grain merchant buys in its existing short position and takes a new position in the new delivery month. (This is" known as rolling the hedge.) The price payable on delivery of the grain is adjusted to reflect the difference between the cost of these positions, plus a small fee (often 2