Effects of Contract Provisions on the Success of a Futures Contract

This article investigates the effect of contract provisrons in attracting hedgers to a futures market. The new pork bellies futures contract initiated in 1961 resulted in very light trading during the first 18 months. Six pro-visions of the contract which caused dissatisfaction among traders were those dealing with shrinkage allowance, limitations on storage time, grades and standards, transportation allowance, methods of storage protection, and delivery time. After these provisions were revised in 1962 and 1963 in such a way as to bring them into closer correspondence with trade practices, hedger utilization increased rapidly and steadily. D URING the past several years, new futures contracts have been es-tablished for many commodities not previously traded on futures exchanges. The apparent success of two of these contracts, the live-beef contract and the frozen-pork-belly contract, has focused attention on the possibilities for successful contracts in other commodities, for example, live hogs, lambs, feeder cattle. Traditionally, most economists have be-lieved that commodities should possess certain inherent characteristics i