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The Economic Function of Agricultural Products Futures Market
Price risk can be said to be everywhere. In the commodity market, droughts, floods, wars, political turmoil, storms and other changes will spread all over the world, directly affecting commodity prices. Intense market competition will lead to large price fluctuations in a short period of time. The risk factors related to supply and demand also include the seasonality of harvest of some commodities and the seasonality of demand. The potential price risk brought by the unpredictability of supply and demand is inherent in the market economy, and both buyers and sellers can't resist it.

Futures contracts are legally binding agreements reached through exchanges. Futures contracts have uniform provisions on the quantity of commodities bought and sold, the expected time and place of delivery, and the quality of products. In fact, except for the price, all aspects of futures contracts have unified regulations. For this reason, futures contracts are attractive to hedgers who want to shelter from the rain and ensure that they are not affected by drastic price changes. The production of agricultural products is easily affected by climatic conditions that are independent of human will, and it is risky. Through the useful tool of futures contract, farmers, grain enterprises and even consumers can make more reliable estimates of agricultural products market.

Grain enterprises, food processing plants and oil plants can make better use of futures to manage purchase and sale, thus improving their operating profits. Grain depot operators can use agricultural products futures to provide customers with various flexible sales methods, thus occupying a competitive advantage. When storing crops, farms can use the futures market to lock in the ideal selling price. Feed enterprises can use agricultural products futures to limit the maximum purchase price to avoid the impact of rising feed raw materials or feed prices. Any enterprise related to the production and operation of agricultural products can use the agricultural futures of big exchanges to control costs and increase income.

Of course, in addition to hedging, futures contracts also have the function of risk speculation, and various futures contracts with different risks can provide investors with profit opportunities. For example, buying and selling agricultural futures and profiting from expected price changes. In a market economy, producers and operators make business decisions according to the price signals provided by the market. The authenticity and accuracy of price signals directly affect the correctness of their business decisions, and then affect their business benefits.

Since the emergence of futures trading, people have found that the price function has gradually become an important economic function of the futures market. The so-called price discovery function refers to the futures price formed by futures trading in an open, fair, efficient and competitive futures market, which has the characteristics of authenticity, predictability, continuity and authority, and can truly reflect the trend of future commodity price changes.

Futures prices can accurately and comprehensively reflect the real supply and demand situation and its changing trend, which has a strong guiding role for producers and operators. Although many producers and operators in the world do not participate in futures trading and have no direct relationship with the futures market, they are making their own production and operation decisions by using the prices discovered by futures exchanges and the market information disseminated. For example, manufacturers decide the production scale of commodities according to the changes of futures prices; In trade negotiations, the transaction price of bulk commodities is often determined on the basis of futures prices.