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Futures Markets and Marketing Firms: The U.S. Soybean‐Processing Industry
Author(s) -
Lence Sergio H.,
Hayes Dermot J.,
Meyers William H.
Publication year - 1992
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242585
Subject(s) - futures contract , cash , economics , production (economics) , margin (machine learning) , financial economics , forward market , microeconomics , finance , machine learning , computer science
A model of marketing firms in the presence of futures markets is presented and tested with data from the U.S. soybean‐processing industry. Results show that production increases if output futures prices rise, material input cash prices fall, or the output cash‐futures price relationship becomes more volatile. Sufficient assumptions for these results are expected‐utility‐maximizing competitive firms with nonincreasing absolute risk aversion and nonstochastic Leontief production functions, unbiased futures prices, and linearly related cash and futures prices. The standard marketing margin is inappropriate for analyzing market structure or risk in the presence of futures markets.