On the qualitative properties of futures market equilibrium (Q1080761)

This paper analyses the spot and futures market equilibrium for a single commodity (''wheat''), in a model with random final demand, and risk-averse producers and speculators. It is shown that an equilibrium always exists, and that it must be of one of three types: (i) the futures price is less than the expected spot price; the quantity hedged by the producers on the futures market is less than the entire output; and the output is less than it would be under certainty (if demand were not random); (ii) all these inequalities are reversed; (iii) all these inequalities are equalities. If there are many speculators then a sufficient condition for Case (i) [resp. (ii), resp. (iii)] is that the spot price for wheat and the speculators' returns from their investments on other markets be positively dependent [resp. negatively dependent, resp. independent].