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The Best Book Ever Written about Commodity Futures Markets

I often get asked by people with an interest in commodity markets where they should start. What books should I read? My response is always the same. Start with Economics of Futures Trading by Professor Thomas Hieronymus. I have been studying and reading about commodity futures markets for over 40 years, and in my judgment, this is still the best book ever written on these markets.

It does not matter that the last edition of the book came out in 1977. The market wisdom in the book is timeless. Economics of Futures Trading is full of insights that are as relevant today as the day Professor Hieronymus wrote the words. I constantly reference something from Tom’s book in my own work.

So, what makes Economics of Futures Trading so timeless?  I can’t really say it any better than one of the reviewers of the book over on Amazon. Matt Hickey commented:

“I have 30 years’ experience as commodity hedger and speculator. I was fortunate enough to have Tom Hieronymus in two classes at the U of I. When I read this book, I swear that I can hear his voice in the lecture hall in Turner Hall. The message has not changed because the markets only make cosmetic changes. Tom Hieronymus understood the markets. If you are going to participate in the commodity markets, this is a must read.”

In other words, the underlying players and motivations for using commodity futures markets really have not changed that much over time. Yes, trading now takes place electronically and we have high frequency traders that trade dramatically faster than was possible in the past, but the motivations of hedgers and speculators are still pretty much the same. Professor Hieronymus understood the markets on this level like no one else I have ever encountered. 

As I noted above, Economics of Futures Trading is full of profound insights about commodity markets.  Something that rarely gets discussed these days is the reality of futures trading within large commodity firms, like the ABCDs.  Here is what Professor Hieronymus had to say on the subject:

“Skill in the use of futures markets in connection with commodity businesses requires relatively rare talents and is difficult to develop. Futures trading activities become the nerve centers of many businesses and receive a large amount of attention. The people who do the trading are highly paid, the importance and rarity of their skills gaining the most meaningful kind of recognition—money. A processing plant may cover a city block and be several stories tall; an impressive collection of equipment, housing hundreds of people performing complicated tasks making exotic products. Deep in the bowels, in a single room, a handful of traders make some of the most important decisions affecting the profit of the company. These are the people who work under the greatest uncertainty and stress and are among the highest paid employees.”  Economics of Futures Trading, p. 5-6)

The vast majority of financial economists have yet to catch up with this reality about how futures trading actually works in large companies.  Almost all of them conduct hedging with one eye towards market price movements, and in some cases, with both eyes.  This behavior is pervasive but largely ignored by financial economists because this does not fit in with their theoretical models about hedging.  Tom had it right over 50 years ago. 

I also want to add that this book had a major impact on my professional career. Maybe this explains why I have put so much time and effort into getting the book back into print. It all started in high school for me. Yes, your read that right, high school. I did my senior FFA project on hedging feedlot cattle production and someone suggested I should read Professor Hieronymus’ book as part of the project. I am pretty sure it was my vocational ag instructor Mr. Nimieyer.  I am eternally grateful to him! So, in the winter of 1976 as a high school senior, I read Economics of Futures Trading for the first time. I have been fascinated (obsessed?) with commodity futures markets ever since.

There is an interesting postscript to this story.  When I was hired at the University of Illinois in 1997, my department head, Bob Hauser, said that the model he had in mind for my position was Professor Hieronymus.  He wanted me to follow Tom’s lead and do both academic research and engage with the commodity trade.  I have done my best to be true to that vision the last 25 years. 

Finally, it is interesting to ponder the incredible impact that Professor Hieronymus has had on my professional career.  My interest in commodity futures markets started in earnest during high school when I read Economics of Futures Trading and my present position here at the University of Illinois is modelled after Tom’s.  The Norton Chair that I am fortunate to hold is named after Tom’s advisor and mentor here at the University of Illinois.  I think it is safe to say I have been chasing after Professor Hieronymus my entire adult life.    

If you would like to read this timeless classic for the first time or would like to re-read it again, Ceres Books has just reissued it in Kindle ebook and paperback formats. Details here https://scotthirwin.com/books/economics-of-futures-trading/ and the Amazon page here https://www.amazon.com/Economics-Futures…/dp/B09QX57QGW/

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