Temporal Relationships Among Prices on Commodity Futures Markets: Their Allocative and Stabilizing Roles

The role that futures markets play in guiding inventories, through hedging, has been emphasized in economic literature. Historically, futures markets first emerged for the annual crops that could be continuously stored (grain and cotton); hence inventory hedging has been important from the outset. But forward pricing which was not attendant upon inventories has long been practiced, and the more recent emergence of futures markets for non‐inventory commodities dramatizes this fact. We show here that the model of intertemporal price relationships differs for the two cases and provide evidence for selected commodities. The contrasting implications for allocation and stabilization are also drawn.