Futures markets can provide an efficient tool for farmers, traders and processing companies to reduce the price risk associated with the trade of agricultural commodities. Furthermore and probably even more important, a well functioning futures market increases the price transparency on agricultural commodity markets and provides valuable and inexpensive information for all market participants, including those who do not trade on the commodity exchange.
Futures markets for agricultural products have gained considerably in importance over the last 20 years, and futures markets have been established in an increasing number of countries – for example Hungary and Germany in the 1990s. The establishment of a futures exchange is also on the political agenda in Ukraine. This paper provides an introduction to the functioning of futures markets for those who are not familiar with this risk-management tool. It is structured as follows. Chapter 2 explains the nature of futures markets, and in chapter 3 an overview is given on how futures markets are organised. How farmers can profit from the existence of futures markets is discussed in the 4th chapter.
