Right. You buy a future that says "I will provide 30,000 units of soybeans in St. Louis in September, at 300/unit" or whatever. You were planning on growing 325 or something, and you hedged the majority of your crop. Somebody buys your futures contract.
Then, demand for soybeans tanks. Price drops. Doesn't matter. Somebody has already paid you for that opportunity and locked in their price.
If soybean demand skyrockets, you miss out on the profits since you already sold, but you locked in your expected profits for the year - congrats!
If your crops all die, there's insurance for that but you could also be somewhat creative about call options on September soybeans to make sure you could buy back in at a decent price to still deliver your goods. Anyway, these markets exist specifically to help smooth out price insecurities on commodities for goods producers.
Can you demonstrate that's true in general for producers of commodities in the third world? I don't doubt it's true for middlemen, or companies relying on producers.
If you can, could you also show what proportion of profits are diverted to hedging vs the proportion lost to reduction of risk exposure for a multinational in, let's say, coffee/chocolate or some other comestible.
Then, demand for soybeans tanks. Price drops. Doesn't matter. Somebody has already paid you for that opportunity and locked in their price.
If soybean demand skyrockets, you miss out on the profits since you already sold, but you locked in your expected profits for the year - congrats!
If your crops all die, there's insurance for that but you could also be somewhat creative about call options on September soybeans to make sure you could buy back in at a decent price to still deliver your goods. Anyway, these markets exist specifically to help smooth out price insecurities on commodities for goods producers.