Industries & Professions /
A futures contract is an agreement to deliver a particular commodity, such as wheat, pork bellies, or coffee, at a specific date, time, and place. For example, a farmer might sell his oats before they are sowed (known as hedging) because he cannot predict what kind of price he will be able to demand later on. If the weather is favorable and crops are good, he will have competition, which will drive prices down. If there is a flood or drought, oats will be scarce, driving the price up. He wants to ensure a fair price for his product to protect his business and limit his risk, since he cannot predict what will happen.