The two main functions of commodity markets are risk transference and price discovery.
I think it’s easier to understand the former than the latter when you think of it in terms of hedging and speculating.
This WSJ article points to a great example of price discovery and how it’s used. All the market participant’s activity is reduced into a single price each day, every day.
Those prices signal to those in the industry where they should be allocating their resources and because there are many expirations months during the years, when they should do it.
This article discusses “double cropping” which is the result of price discovery, one of the least spoken about but vitally important aspects of the commodity futures markets and their impact on the economy.
I thought you would be interested in the following story from The Wall Street Journal.
Farmers Hop on Soybean Bandwagon