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Do Futures Benefit Farmers?

  • Sergio H. Lence

Simulations are used to analyze welfare and market- and farm-level effects of making futures available to producers of a storable commodity. Key features of the model are the explicit consideration of dynamic impacts due to inventories, and of aggregate market effects associated with futures adoption by some producers. Application to the natural rubber market shows that futures availability can lead to sizable market- and farm-level effects. Futures availability enhances consumer welfare, reduces nonadopter welfare, and yields important welfare gains for adopters when their market share is small and welfare losses when they account for a sufficiently large market share. Copyright 2009, Oxford University Press.

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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 91 (2009)
Issue (Month): 1 ()
Pages: 154-167

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Handle: RePEc:oup:ajagec:v:91:y:2009:i:1:p:154-167
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  1. Lence, Sergio H. & Hayes, Dermot J., 2000. "U.S. Farm Policy And The Variability Of Commodity Prices And Farm Revenues," 2000 Conference, April 17-18 2000, Chicago, Illinois 18937, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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  7. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, October.
  8. Turnovsky, Stephen J, 1983. "The Determination of Spot and Futures Prices with Storable Commodities," Econometrica, Econometric Society, vol. 51(5), pages 1363-87, September.
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  10. Turnovsky, Stephen J & Campbell, Robert B, 1985. "The Stabilizing and Welfare Properties of Futures Markets: A Simulation Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 277-303, June.
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  12. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-82, December.
  13. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  14. Williams, Jeffrey C., 2001. "Commodity futures and options," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 13, pages 745-816 Elsevier.
  15. Zant, Wouter, 2001. "Hedging Price Risks of Farmers by Commodity Boards: A Simulation Applied to the Indian Natural Rubber Market," World Development, Elsevier, vol. 29(4), pages 691-710, April.
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