Commodity Futures and Their Role in Agricultural Sector Hedging

Abstract

The significance of futures and options contracts for the control of price risk in the agriculture industry is examined in this article. There is a pressing need to establish market mechanisms that would enable agricultural producers to plan, market, and hedge their output in light of the global volatility in the prices of agricultural goods and inputs. Examining the use of commodity derivatives in agricultural hedging techniques is the primary goal of this article. Research suggests that the agricultural industry may greatly benefit from developing futures and options commodities exchanges. These exchanges could use futures and options contracts to mitigate the risk of negative price fluctuations for agricultural inputs and outputs. Topics covered: commodity derivatives, futures, options, and commodity exchanges.