Sample Essay

Fluctuating commodity prices has necessitated most economies and organisation to enter into contracts with producers of those products in order to secure the future prices through purchase of futures.

 Futures are basically agreements between producers and consumers of certain products for the purpose of securing the stability of the price of the goods in the future with the sole aim of ensuring constant supply. Basically, the future price of commodity is set well in time be assessing the demand and supply among other factors. Investors in the ‘futures’ benefit from ability to access to the commodities at prices which are lower than the going prices, if there is inflation and the prices increase.

                As indicated in the following diagram, futures for all products have increased over the period between 1990 and 2008, with the increase following changes in fuel prices. Futures for crude were stable over the period, with the sharp increase in 2006 and 2008. Countries exporting energy products were bound to benefit from the increase in the price of futures since it implied that the future prices of fuel were bound to increase, thus the increased demand for the futures in spite of the increase in prices. However, it is also clear that future for food-related commodities, which forms a major component of imports for those economies involved in exportation of oil, were on an increase.

 

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