They Trade Shrimp in Minneapolis? An Examination of the MGE White Shrimp Futures Contract

The successful introduction of risk management products to industries unfamiliar with futures markets (e.g., dairy, aquaculture, and environmental resources) is likely to become increasingly important as futures exchanges consider alternative structures (e.g., for-profit) and the trading platform evolves (i.e., electronic trading). Here, we examine the performance of the Minneapolis Grain exchange's white shrimp futures contract, one of the first futures contracts aimed at the aquaculture industry. Although the market structure conforms to most of the traditional criteria for a successful futures contract, the contract's performance is disappointing in terms of liquidity and hedging effectiveness. It is not clear if this is due to a poorly designed contract or a lack of participation (i.e., cash-futures arbitrage) required for convergence and a predictable basis.