I looked up onions, lettuce and tomatoes (because burgers), and the volatility actually looks very similar. Am I missing something or looking at the wrong things?
Volatility is a natural consequence of weather, blight, etc., etc.
To reduce volatility you would need to actually stabilize the supply of onions.
What futures do is allow traders to shift risk from the future to the present. By pricing that risk, it's possible for people who depend on onions to pay a little more now in exchange for a guarantee about the future.
It's not magically going to make onions less volatile (although high risk prices can spur investment which might) but it can reduce disruptions caused by volatility.
The classic example of this is futures on jet fuel which allow airlines to weather random wars in the middle east, OPEC shenanigans, etc. Ticket prices are higher this way, but the existential threat of being forced to cancel a bunch of flights is gone.
cwal37 · · focus · HN ↗
<a href="https://en.wikipedia.org/wiki/Onion_Futures_Act" rel="nofollow">https://en.wikipedia.org/wiki/Onion_Futures_Act
(which also banned box office receipt futures)
A fun thing is to go on FRED and make a graph with prices from onions and, say, corn to see the differences in volatility.
chirau · · focus · HN ↗
Tomato: <a href="https://fred.stlouisfed.org/series/WPU01130217" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130217 Onion: <a href="https://fred.stlouisfed.org/series/WPU01130216" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130216 Lettuce: <a href="https://fred.stlouisfed.org/series/WPU01130215" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130215
gradus_ad · · focus · HN ↗
brookst · · focus · HN ↗
hyperhello · · focus · HN ↗
brookst · · focus · HN ↗
collingreen · · focus · HN ↗
SR2Z · · focus · HN ↗
To reduce volatility you would need to actually stabilize the supply of onions.
What futures do is allow traders to shift risk from the future to the present. By pricing that risk, it's possible for people who depend on onions to pay a little more now in exchange for a guarantee about the future.
It's not magically going to make onions less volatile (although high risk prices can spur investment which might) but it can reduce disruptions caused by volatility.
The classic example of this is futures on jet fuel which allow airlines to weather random wars in the middle east, OPEC shenanigans, etc. Ticket prices are higher this way, but the existential threat of being forced to cancel a bunch of flights is gone.
brookst · · focus · HN ↗
SR2Z · · focus · HN ↗
If there is a supply shortage prices will rise; no amount of futures trading can create resources out of thin air.