The primary reason for dealing in futures is that the merchant who buys a large quantity of wheat, which he intends to sell again at some future time, may be able to insure himself against loss by a fall in price whilst he is holding the wheat he has bought. This he does by selling to a speculative buyer an equal quantity of wheat to be delivered at some future time. If whilst he is holding his wheat prices decline, he will then be able to recoup his loss on the wheat by buying on the market at the reduced price now current to meet his contract with the speculative buyer, and the profit he makes on this transaction will more or less cover his loss on the actual deal in wheat which he has in progress. As a matter of fact he does not actually deliver the wheat sold to the speculative buyer. The transaction is usually completed by the speculator paying to the merchant the difference in value between the price at which the wheat was sold and the price to which it has fallen in the interval. This payment is insured by the speculative buyer depositing a margin of so many cents per bushel at the time when the transaction was made. Speculation is, however, kept within reasonable bounds by the fact that a seller may always be called upon to deliver wheat instead of paying differences. The advantage claimed for this system of insurance is that whilst it is not more costly to the dealers in actual wheat than any other equally efficient method, it supports a number of speculative buyers and sellers, whose business it is to keep themselves in touch with every phase of the world’s wheat supply. The presence of such a body of men whose wits are trained by experience of market movements, and who are ready at any moment to back their judgment by buying and selling large quantities of wheat for future delivery, is considered to exert a steadying effect on the price of wheat, and to lessen the extent of fluctuations in the price. CHAPTER III THE QUALITY OF WHEAT In discussing the quality of wheat it is necessary to adopt two distinct points of view, that of the farmer and that of the miller. A good wheat from the farmer’s point, of view is one that will year by year give him a good monetary return per acre. Now the monetary return obviously depends on two factors, the yield per acre and the value per quarter, coomb, or bushel, as the case may be. These two factors are quite independent and must be discussed separately.