Assessing market performance

Futures markets perform several roles or functions, and the list varies marginally from author to author. Goss (1981) identified four roles: (a) facilitate stockholding; (b) facilitate the shifting of risk; (c) provide a mechanism for the collection and dissemination of information; (d) provide forward prices. Central to any list, regardless of the type of commodity or instrument, is the formation of forward prices. Accurate forward prices from the futures market are critical, since many market participants use these prices for production, processing, pricing and marketing decisions (Gardner 1976; Hurt and Garcia 1982). Inaccurate forward prices can lead to erroneous price signals, and consequently to a misallocation of resources. ¹ This problem is particularly relevant to livestock production and marketing.