OPTIMAL PRICE POLICY AND THE FUTURES MARKETS

Because of the short-term nature of existing commodity futures contrac ts, optimally hedged producers remain subject to intertemporal income uncertainty, but price stabilization may be detrimental because it neg ates the benefits of intertemporal production flexibility. Multiperiod futures would be preferred to price stabilization, although they woul d not provide perfect hedging opportunities, thus leaving scope for go vernment intervention. The optimal price policy requires the support p rice to be positively correlated to the futures price that prevails wh en production decisions are made.