Do Futures Benefit Farmers Who Adopt Them?
The present study shows how to use a simulation approach to quantify the effects of making a futures market available on adopting farmers’ behavior and welfare, and its impact on market variables such as spot prices. Relevant constraints often faced by commodity producers, such as credit restrictions or lack of markets for staple crops, are explicitly considered. Aggregate market effects associated with the adoption of futures by a group of producers are also incorporated. Under the chosen parameterizations, futures availability affects various aspects of adopters’ behavior. Futures availability renders consumers better off and non-adopting producers worse off. Farmers who adopt futures gain if their market share is small, but lose if their market share is large. However, the magnitudes of adopters’ gains or losses are quite small, especially when compared to the welfare effects resulting from alternative changes in the market environment faced by farmers, such as the relaxation of credit restrictions or the opening of a market for food crops. The impact of making futures available on the spot market is quite modest, regardless of whether the share of adopters is small or large.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39(6) 57051
Fax: +39 06 57055522
Web page: http://www.fao.org/es/esa/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard E. Just & Quinn Weninger, 1999.
"Are Crop Yields Normally Distributed?,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 81(2), pages 287-304.
- Chambers, Marcus J & Bailey, Roy E, 1996.
"A Theory of Commodity Price Fluctuations,"
Journal of Political Economy,
University of Chicago Press, vol. 104(5), pages 924-57, October.
- Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
- Williams,Jeffrey C. & Wright,Brian D., 1991.
"Storage and Commodity Markets,"
Cambridge University Press, number 9780521326162.
- Turnovsky, Stephen J, 1983. "The Determination of Spot and Futures Prices with Storable Commodities," Econometrica, Econometric Society, vol. 51(5), pages 1363-87, September.
- Geweke, John, 1988. "Antithetic acceleration of Monte Carlo integration in Bayesian inference," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 73-89.
- Kawai, Masahiro, 1983. "Spot and Futures Prices of Nonsotrable Commodities under Rational Expectations," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 235-54, May.
- 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.
- Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:fao:wpaper:0320. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gustavo Anríquez)The email address of this maintainer does not seem to be valid anymore. Please ask Gustavo Anríquez to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.