Document Type

Thesis - Open Access

Award Date

1968

Degree Name

Master of Science (MS)

Department

Economics

Abstract

Futures trading in the United States began over 100 years ago. The first commodities traded were grains such as wheat, corn and oats. Since that time, over 50 commodities ranging from live animals and animal products to coffee, sugar and metals have been added to the list of commodities traded in the futures markets. Currently, 29 commodities possessing widely varying physical characteristics are actively traded on United States' exchanges. Appendix table A-1 lists a number of commodities, some of which are inactive and others which are actively traded on futures markets in the United States. The basic characteristics of Unit�d States agriculture have been changing for a number of years, but during the last 10-15 years the rate of change seems to have accelerated. These basic changes in agriculture-- increased use of technology, larger farms, and increased production per farm, increased costs of production have resulted in increased capital needs for farmers and agri-business firms. These increased capital needs have been met primarily by increased borrowing. Increased borrowing by individuals with fixed assets, however, results in greater risk, as suggested by the principle of increasing risk. This economic principle suggests that as debt increases, the operator's equity as a percentage of total investment declines. For example, if a person w th $10,000 in capital borrows $10,000, .his equity is 50%. If he borrows $40,000, his equity is 20%. The farmer whose equity is only 20% has a greater· risk of losing his original investment than the farmer whose equity is 50%. Even a modest change in price results in a large effect on net income. Therefore, lenders are wont to limit the amount of capital loaned on given collateral because they realize the effect slight changes in price have on a borrower's equity. (See more in text.)

Library of Congress Subject Headings

Agricultural credit
Produce trade

Format

application/pdf

Publisher

South Dakota State University

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