William G. Tomek

Did Futures Trading Influence Potato Prices

THIS NOTE has two distinct but complementary objectives: (1) to reconsider arguments on the relationship between the volume of trading in Maine potato futures contracts and changes in certain potato prices; (2) to illustrate two known but sometimes disregarded problems in economic research. The reconsideration, we believe, is justified by the numerous criticisms of commodity futures markets. This paper presents additional evidence with respect to an argument presented to the Congress in 1963 [see 4a]. Prior to 1950 there had been little trading in futures contracts for potatoes. In the crop years, 1951-1965, trading in Maine contracts increased substantially, but there was essentially no trading in Idaho contracts. Over the same time period, shipping point prices in Maine declined relative to those in Idaho (Table 1). Testifying before a Congressional subcommittee [4a, pp. 45f], an expert witness stated (a) that the price decline reduced returns to the Maine potato industry roughly

Agricultural Product Prices

15 million a year, (b) that futures trading played an important part, if not a dominant part, and (c) that change in production was not the answer to the price decline.