Do Futures Benefit Farmers?
Posted: 17 Jan 2009
Date Written: 2008-02
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.
Suggested Citation: Suggested Citation