In commodity markets, an agricultural firm can find futures for low-quality olive oil and frozen orange juice; however, there are no futures for high-quality olive oil or fresh orange juice. While the present set of futures can help agribusinesses that focus on low-quality products in mitigating some of the risks stemming from crop supply and demand fluctuations, they are certainly not sufficient, or adequate, if the agricultural firm targets high quality output. For those agricultural firms who aim to produce high-quality products, there are unfortunately no futures to help reduce risks.
While futures exist for the end product (e.g. olive oil, orange juice), the main problem for agricultural firms is the growth of the fruit. Can we have fruit futures? The current futures market does not have the capability to store and trade fruit. It can be argued that if we can mitigate the risks of fruit crop, then we can reduce a majority of the risks present in the life of these agricultural businesses.
So, financial institutions — is it time to establish fruit futures?