This paper examines the lead-lag relationship between futures trading activity (volume and open interest) and cash price volatility for major agricultural commodities. Granger causality tests and generalized forecast error variance decompositions show that an unexpected increase in futures trading volume unidirectionally causes an increase in cash price volatility for most commodities. Likewise, there is a weak causal feedback between open interest and cash price volatility. These findings are generally consistent with the destabilizing effect of futures trading on agricultural commodity markets.

This article examines the price discovery performance of futures markets for storable and nonstorable commodities in the long run, allowing for the compounding factor of stochastic interest rates. The evidence shows that asset storability does not affect the existence of cointegration between cash and futures prices and the usefulness of future markets in predicting future cash prices. However, it may affect the magnitude of bias of futures markets’ estimates (or predictions) for future cash prices. These findings have several important implications for commodity production decision making, commodity hedging, and commodity price forecasting. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:279–300, 2001

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