ABSTRACT
Liquidity is essential to the success of futures markets: many of the new contracts which are developed by commodity exchanges fail because they do not attract sufficient buying and selling interest. For most of the major agricultural commodities which are discussed in this book the price set on the futures market is the key reference price for world trade in the commodity. The extent to which futures markets achieve success in the performance of this role is considered in the next section. Yet futures markets do have the serious economic purposes of permitting hedging and transferring risk; setting fair and open prices; reducing price volatility; and of establishing forward prices. It is reasonable to conclude that physical commodity traders would not hedge if they did not find it useful to do so, yet futures markets do not provide as good a set of opportunities to hedgers as they might wish.
