The role that futures markets play in guiding inventories, through hedging, has been emphasized in economic literature. Historically, futures markets first emerged for the annual crops that could be continuously stored (grain and cotton); hence inventory hedging has been important from the outset. But forward pricing which was not attendant upon inventories has long been practiced, and the more recent emergence of futures markets for non‐inventory commodities dramatizes this fact. We show here that the model of intertemporal price relationships differs for the two cases and provide evidence for selected commodities. The contrasting implications for allocation and stabilization are also drawn.

Price theory suggests that commodity prices should be stationary series. Yet, tests for unit roots rather frequently imply that these prices are not stationary. This seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn, soybeans, barrows and gilts, and milk. The preponderance of evidence suggests that nominal prices do not have unit roots, but the results are sensitive to the specification of the test equation. Accounting for a structural change that shifts the mean appears to be an important issue in unit root tests. Copyright 2007, Oxford University Press.

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This article surveys and evaluates the current state of knowledge about producers' marketing strategies to manage price and revenue risk for farm commodities. The review highlights gaps between concepts and their implementation. Many well-developed models of price behavior exist, but appropriate characterization and estimation of the probability distributions of commodity prices remain elusive. Hence, the preferred measure of price risk is ambiguous. Numerous models of optimal marketing portfolios for farmers have been specified, but their behavior appears to be inconsistent with most, if not all, of these models. In addition, some research suggests that farmers can earn speculative profits, which is inconsistent with notions of efficient markets. The conclusions discuss what academic research can and cannot accomplish in relation to assisting producers with risk-management decisions.

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