Success and Failure of Agricultural Futures Contracts

Posted: 22 Aug 1998

See all articles by B. Wade Brorsen

B. Wade Brorsen

Oklahoma State University - Stillwater - Department of Agricultural Economics

N'Zue F. Fofana

affiliation not provided to SSRN

Abstract

The objective of this study is to determine the factors contributing to the success or failure of agricultural futures contracts. Commodities with futures markets and without futures markets were selected and analyzed with respect to their product homogeneity, vertical integration, buyer concentration, activeness of their cash market, cash price variability, and size of their cash market. Homogeneity, vertical integration, buyer concentration, and activeness of the cash market were measured by the Delphi approach. An active cash market is a necessary condition for futures contract success. The structure of the marketing channel, the size of the cash market, the activeness of the cash market, the effectiveness of the grading system (homogeneity), liquidity cost, the ability of the own hedge market to bear more risk than the existing cross hedge market, and cash price variability are important in explaining differences in volume and open interest among existing futures markets. Results also suggest that none of the non-traded commodities considered is likely to have a successful contract if it were traded; since, none have an active cash market.

JEL Classification: G13

Suggested Citation

Brorsen, B. Wade and Fofana, N'Zue F., Success and Failure of Agricultural Futures Contracts. Available at SSRN: https://ssrn.com/abstract=6835

B. Wade Brorsen (Contact Author)

Oklahoma State University - Stillwater - Department of Agricultural Economics ( email )

Stillwater, OK 74078-6026
United States
405-744-6836 (Phone)
405-744-8210 (Fax)

N'Zue F. Fofana

affiliation not provided to SSRN

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