Q.39
What are the major benefits of futures trading for farmers and farming community?
- Economic Function of Commodity Futures Trading:
- Price Risk Hedging: Agricultural prices are notoriously volatile due to unpredictable weather, supply gluts, and geopolitical demand shifts. The primary economic function and benefit of futures contracts for farmers, producer organizations (FPOs), and agribusinesses is hedging against unpredictable price volatility.
- By entering into a futures contract, producers lock in a forward sales price months prior to harvest, guaranteeing a predetermined revenue stream and immunizing their farm business against downward price shocks at harvest time.
- Distractors: Futures markets do not eliminate natural market shifts; rather, they transfer price risk from risk-averse producers (hedgers) to risk-seeking investors (speculators).
Correct option: (4) to cover price risk against the unpredictable changes in prices
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