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Futures Markets and Marketing Firms: The U.S. Soybean-Processing Industry

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  • Sergio H. Lence
  • Dermot J. Hayes
  • William H. Meyers

Abstract

A model of marketing firms in the presence of futures markets is presented and tested with data from the U.S. soybean-processing industry. Results show that production increases if output futures prices rise, material input cash prices fall, or the output cash-futures price relationship becomes more volatile. Sufficient assumptions for these results are expected-utility-maximizing competitive firms with nonincreasing absolute risk aversion and nonstochastic Leontief production functions, unbiased futures prices, and linearly related cash and futures prices. The standard marketing margin is inappropriate for analyzing market structure or risk in the presence of futures markets.

Suggested Citation

  • Sergio H. Lence & Dermot J. Hayes & William H. Meyers, 1992. "Futures Markets and Marketing Firms: The U.S. Soybean-Processing Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 716-725.
    • Handle: RePEc:oup:ajagec:v:74:y:1992:i:3:p:716-725.
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    Cited by:

    1. Lence, Sergio H., 1995. "On the optimal hedge under unbiased futures prices," Economics Letters, Elsevier, vol. 47(3-4), pages 385-388, March.
    2. Lence, Sergio Horacio, 1991. "Dynamic firm behavior under uncertainty," ISU General Staff Papers 1991010108000010656, Iowa State University, Department of Economics.
    3. Ziran Li & Dermot J. Hayes, 2022. "The hedging pressure hypothesis and the risk premium in the soybean reverse crush spread," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(3), pages 428-445, March.

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