Comment by jdaw1

Farmer agrees to sell an agricultural commodity to a grocer, for a price fixed now, with delivery after the harvest. Assume price falls a lot, and then the grocer goes bust. Ouch! Then the farmer must instead sell on the open market, at the lower price, and so becomes unable to make the payments on the mortgage on the tractor. Ouch ouch!

The farmer did want the price certainty that allows the risk of being more leveraged (tractor mortgage). But the farmer was not the optimal person to hold the credit risk of the grocer.

And the farmer might have sold without the intent to deliver. It might be that the delivery specification, or location, or whatever, isn’t perfect for the farmer. But if the farmer is confident that the prices will move together, then it still works.