Commodity futures
Also called: Agricultural futures · Topic: Agricultural Marketing, MSP, Buffer Stocks and PDS · NCERT: Beyond NCERT
Meaning
Commodity futures are standardised contracts, traded on an exchange, to buy or sell a commodity at a set price on a future date. They serve two purposes. The first is hedging, which means locking in a price today to reduce the risk of prices falling or rising later. The second is price discovery, which means finding the market price through the bids of many buyers and sellers. In India, agri futures trade on NCDEX and MCX. The Forward Markets Commission, the old regulator, merged into SEBI in 2015.
Example
A soybean processor can buy a futures contract to fix the price of next season's supply and so guard against a price rise. However, futures in seven agri commodities have been suspended since December 2021: paddy, wheat, chana, mustard, soybean, crude palm oil and moong.
Don't confuse with
- Contract farming: a private deal between a firm and a farmer for actual delivery of produce, often with inputs supplied. Futures are standardised exchange contracts, and most are settled without the farmer's own crop changing hands.
Related concepts
- Cooperative marketing
- Farmer producer organisation
- Alternative marketing channels
- Contract farming
- Price discovery