The Economic Effect of Potential Grain Futures Contract Redesign

Abstract

The preceding chapter noted that an expansion of the deliverable set can reduce the profitability—and hence the likelihood—of a long manipulation. An increase in the number of deliverable locations would also increase available delivery capacity, which would reduce the likelihood of pricing anomalies due to the exhaustion of regular space or quality problems. Those are beneficial objectives, but such an expansion will have other effects as well. An increase in the number of deliverable grades or delivery locations will, for example, change the basis risks faced by the hedgers of various grades in various locations. As noted in Chapter 2, the costs and benefits of any such change depend upon the geographic distribution of hedgers.