Agricultural Futures Contracts as Part of a Sustainable Investment Strategy: Issues and Opportunities

Futures and forward contracts together offer farmers of all sizes important tools for shifting and managing production risk. This risk shifting is particularly apparent in the U.S. grain complex, where the United States also has a significant export position. Because of this international reach, we argue that the futures and forward markets play a critical role in reducing world food insecurity and thus contribute to satisfying Sustainable Development Goal #2: Zero Hunger. We further argue that the presence of investors willing to take the opposite side of the farmers’ natural short hedge helps futures markets perform their key functions of price discovery and risk management. In addition to these roles, futures markets also enable farmers to finance their crops more efficiently over the production cycle, supporting operational stability. Finally, we highlight that agricultural markets in the United States are supported by significant regulation at the county, state, and federal levels. These farming regulations, coupled with federal oversight of agricultural futures markets, provide sufficient confidence that the goal of Zero Hunger is being pursued in an appropriate and effective manner, reinforcing the case for agricultural futures as a meaningful component of a broader sustainable investment strategy.