IDEAS home Printed from https://ideas.repec.org/p/ags/uerser/308136.html
   My bibliography  Save this paper

Potentials for Substituting Farmers' Use of Futures and Options for Farm Programs

Author

Listed:
  • Heifner, Richard G.
  • Wright, Bruce H.

Abstract

By using commodity futures, options, or cash forward contracts, farmers can broaden their pricing alternatives and partly protect themselves against price declines within a given year, but they cannot effectively stabilize their incomes across years. Each of these types of contracts sets a price or a price limit for a commodity to be delivered at a later date; futures and options contracts are standardized and traded on exchanges; a commodity option gives the holder the right to buy or sell a futures contract at a specified price during a designated time interval. Government programs to expand use of such contracts by farmers generally would not raise or stabilize market prices or farmers' incomes unless subsidies were involved. Such subsidies would be difficult to administer and offer few advantages over conventional farm programs.

Suggested Citation

  • Heifner, Richard G. & Wright, Bruce H., 1989. "Potentials for Substituting Farmers' Use of Futures and Options for Farm Programs," Agricultural Economic Reports 308136, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uerser:308136
    DOI: 10.22004/ag.econ.308136
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/308136/files/aer628.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.308136?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kenyon, David E., 1984. "Farmers' Guide to Trading Agricultural Commodity Options," Agricultural Information Bulletins 309322, United States Department of Agriculture, Economic Research Service.
    2. Williams, Jeffrey, 1987. "Futures Markets: A Consequences of Risk Aversion or Transactions Costs?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1000-1023, October.
    3. Telser, Lester G, 1986. "Futures and Actual Markets: How They Are Related," The Journal of Business, University of Chicago Press, vol. 59(2), pages 5-20, April.
    4. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price and Yield Uncertainty," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 18(2), pages 139-146, December.
    5. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75(6), pages 844-844.
    6. Gordon, J. Douglas, 1985. "The Distribution of Daily Changes in Commodity Futures Prices," Technical Bulletins 156817, United States Department of Agriculture, Economic Research Service.
    7. Allen B. Paul, 1986. "Liquidation Bias in Futures Price Spreads," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 313-321.
    8. Meyer, Jack, 1977. "Choice among distributions," Journal of Economic Theory, Elsevier, vol. 14(2), pages 326-336, April.
    9. Carter, Colin A & Rausser, Gordon C & Schmitz, Andrew, 1983. "Efficient Asset Portfolios and the Theory of Normal Backwardation," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 319-331, April.
    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.
    11. Heifner, Richard G. & Glauber, Joseph W. & Miranda, Mario J. & Plato, Gerald E. & Wright, Bruce H., 1990. "Futures, Options, and Farm Programs: Report to Congress on a Study Mandated by the Food Security Act of 1985," Staff Reports 278261, United States Department of Agriculture, Economic Research Service.
    12. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price And Yield Uncertainty," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 18(2), pages 1-8, December.
    13. McElroy, Robert & Dismukes, Robert & Ali, Mir, 1989. "State-Level Costs of Production, 1987," Staff Reports 278179, United States Department of Agriculture, Economic Research Service.
    14. McElroy, Robert G., 1987. "State-Level Costs Of Production, 1985," Staff Reports 277933, United States Department of Agriculture, Economic Research Service.
    15. Salant, Stephen W, 1983. "The Vulnerability of Price Stabilization Schemes to Speculative Attack," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 1-38, February.
    16. Paul L. Farris, 1974. "Farm Commodity Price Stabilization through Futures Markets: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(4), pages 829-829.
    17. Hartzmark, Michael L, 1987. "Returns to Individual Traders of Futures: Aggregate Results," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1292-1306, December.
    18. Cox, Charles C, 1976. "Futures Trading and Market Information," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1215-1237, December.
    19. Heifner, R.G. & Plato, G., 1986. "The Efficiency Of Options Compared To, Fixed Price Contracts For Shifting Revenue Risk In Crop Production," 1986 Annual Meeting, July 27-30, Reno, Nevada 278169, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Ho, Thomas S Y, 1984. "Intertemporal Commodity Futures Hedging and the Production Decision," Journal of Finance, American Finance Association, vol. 39(2), pages 351-376, June.
    21. Stephen E. Miller, 1986. "Forward cash contracting of cotton," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 6(2), pages 249-259, June.
    22. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
    23. Plato, Gerald, 1989. "Effects of a subsidized put option program and forward selling on farmers' revenue risks," Technical Bulletins 312313, United States Department of Agriculture, Economic Research Service.
    24. Davenport, Gregory, 1988. "State-Level Costs Of Production, 1986," Staff Reports 278008, United States Department of Agriculture, Economic Research Service.
    25. Robert A. Richardson & Paul L. Farris, 1973. "Farm Commodity Price Stabilization through Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 55(2), pages 225-230.
    26. Chang, Eric C, 1985. "Returns to Speculators and the Theory of Normal Backwardation," Journal of Finance, American Finance Association, vol. 40(1), pages 193-208, March.
    27. William G. Tomek & Roger W. Gray, 1970. "Temporal Relationships Among Prices on Commodity Futures Markets: Their Allocative and Stabilizing Roles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 52(3), pages 372-380.
    28. Powers, Mark J, 1970. "Does Futures Trading Reduce Price Fluctuations in the Cash Markets?," American Economic Review, American Economic Association, vol. 60(3), pages 460-464, June.
    29. Working, Holbrook, 1960. "Price Effects of Futures Trading," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 1(1), pages 1-31.
    30. Anne E. Peck, 1975. "Hedging and Income Stability: Concepts, Implications, and an Example," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(3), pages 410-419.
    31. Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ashok Mishra & Barry Goodwin, 2006. "Revenue insurance purchase decisions of farmers," Applied Economics, Taylor & Francis Journals, vol. 38(2), pages 149-159.
    2. Jha, Shikha & Srinivasan, P. V., 1999. "Grain price stabilization in India: Evaluation of policy alternatives," Agricultural Economics, Blackwell, vol. 21(1), pages 93-108, August.
    3. Heifner, Richard G. & Glauber, Joseph W. & Miranda, Mario J. & Plato, Gerald E. & Wright, Bruce H., 1990. "Futures, Options, and Farm Programs: Report to Congress on a Study Mandated by the Food Security Act of 1985," Staff Reports 278261, United States Department of Agriculture, Economic Research Service.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tabesh, Hamid, 1987. "Hedging price risk to soybean producers with futures and options: a case study," ISU General Staff Papers 1987010108000010306, Iowa State University, Department of Economics.
    2. Kocagil, Ahmet E. & Topyan, Kudret, 1997. "An empirical note on demand for speculation and futures risk premium: A Kalman Filter application," Review of Financial Economics, Elsevier, vol. 6(1), pages 77-93.
    3. Henry L. Bryant & David A. Bessler & Michael S. Haigh, 2006. "Causality in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(11), pages 1039-1057, November.
    4. Boyd, Naomi E. & Harris, Jeffrey H. & Li, Bingxin, 2018. "An update on speculation and financialization in commodity markets," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 91-104.
    5. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    6. Christie-David, Rohan & Chaudhry, Mukesh, 2001. "Coskewness and cokurtosis in futures markets," Journal of Empirical Finance, Elsevier, vol. 8(1), pages 55-81, March.
    7. Liu, Hsiang-Hsi, 1983. "An annual simultaneous equation econometric model of U.S. corn and soybean cash and futures markets," ISU General Staff Papers 198301010800009935, Iowa State University, Department of Economics.
    8. Goss, Barry A., 1980. "Aspects Of Hedging Theory," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 24(3), pages 1-14, December.
    9. Tomek, William G. & Robinson, Kenneth L., 1977. "PART V. Agricultural Price Analysis and Outlook," AAEA Monographs, Agricultural and Applied Economics Association, number 337217, january.
    10. Shafiqur Rahman & M. Shahid Ebrahim, 2005. "The Futures Pricing Puzzle," Computing in Economics and Finance 2005 35, Society for Computational Economics.
    11. Ahmet E. Kocagil & Kudret Topyan, 1997. "An empirical note on demand for speculation and futures risk premium: A Kalman Filter application," Review of Financial Economics, John Wiley & Sons, vol. 6(1), pages 77-93.
    12. Guillermo Llorente & Jiang Wang, 2020. "Trading and information in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1231-1263, August.
    13. James D. Hamilton & Jing Cynthia Wu, 2015. "Effects Of Index‐Fund Investing On Commodity Futures Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 187-205, February.
    14. Miffre, Joëlle, 2016. "Long-short commodity investing: A review of the literature," Journal of Commodity Markets, Elsevier, vol. 1(1), pages 3-13.
    15. Nicole M. Moran & Scott H. Irwin & Philip Garcia, 2020. "Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 611-652, December.
    16. Paul Kupiec, 1998. "Margin Requirements, Volatility, and Market Integrity: What Have We Learned Since the Crash?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(3), pages 231-255, June.
    17. Fleming, Jeff & Ostdiek, Barbara, 1999. "The impact of energy derivatives on the crude oil market," Energy Economics, Elsevier, vol. 21(2), pages 135-167, April.
    18. K. Smimou, 2013. "On the significance testing of fuzzy regression applied to the CAPM: Canadian commodity futures evidence," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 5(2), pages 144-171.
    19. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
    20. Chang, Eric C. & Michael Pinegar, J. & Schachter, Barry, 1997. "Interday variations in volume, variance and participation of large speculators," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 797-810, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uerser:308136. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/ersgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.