Commodity Derivatives: A Viable option for Price Risk Management

Abstract

The fluctuation of commodity prices results in unstable and uncertain income to commodity participants namely farmers, traders, processors/manufacturing companies, customers. This would impact on shortage of production and supply of commodities, fluctuations in prices of essential commodities and negatively on other macro economic factors of the nation. Alternative efforts of the Government's in stabilizing commodity prices through international agreements, market regulations and setting up of price stabilization fund were not given desired results. In order to overcome the negative impact of volatility of commodity prices, commodity derivatives are used by several countries as a tool of risk management. Even in India.