T h e federal treasury has long been used to absorb financial uncertainties of busi-I ness and agriculture throlgh such programs as federal mortgage guarantees, deposit guarantees, and farm price supports. In recent years, it has become increasingly obvious that the government's ability to absorb such financial risks is not inexhaustible. Possibilities for reducing the government's financial cbligations and shifting part of its financial commitment to private investors or speculators deserve exploration. Private traders operating through efficient markets may be able to carry some of these risks at lower cost than the government. The futures markets appear to offer potentials for spreading government financial uncertainties among private traders. This article examines possibilities for hedging farm program budgetary uncertainties through agricultural commodity futures. The analysis also relates to recent proposals for replacing current farm programs with programs to subsidize farmers' use of futures or options.
For over half a century, the federal government has guaranteed returns to farmers through commodity price support and storage programs. The realized costs of these programs frequently differs markedly from budget estimates due to fluctuations in crop yields, export demand, and market prices. For example, total Commodity Credit Corporation (CCC)' program costs deviate from budget estimates by Conclusions stated in this article are solely those of the authors and do not represent official USDA policy or opinions. This article benefits from comments received at its initial presentation at the NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk and Management held in Chicago on April 20-21, 1989. 'The CCC is a federally owned and operated corporation within the U.S. Department of Agriculture that handles all the money transactions involved in the administration of farm commodity price and income support programs.