Future Business Leaders of America (FBLA) Agribusiness Practice Test

How do futures markets benefit processors in agribusiness?

1. By increasing the prices of inputs

2. By assuring adequate supply at agreed prices

3. By reducing the need for contracts

4. By promoting local sourcing

The correct answer is: By assuring adequate supply at agreed prices

Futures markets provide processors in agribusiness with the ability to lock in prices for the commodities they need, effectively assuring an adequate supply at the agreed-upon prices. This capability is crucial for managing cost predictability and financial planning. By entering into futures contracts, processors can mitigate the risks associated with price volatility in the agricultural markets. When a processor knows what price they will pay for their inputs in advance, they can make informed decisions regarding budgeting, production, and pricing of their own products. This is especially important in agribusiness, where the prices of raw materials can fluctuate significantly due to factors like weather conditions, supply chain issues, and market demand changes. Thus, by providing a platform for price stabilization and assurance of supply, futures markets play a vital role in the strategic operations of processors in the agribusiness sector. The other options do not accurately reflect the primary benefits of futures markets. For instance, increasing the prices of inputs would be counterproductive for processors, while reducing the need for contracts and promoting local sourcing do not encompass the primary function of futures, which is price and supply assurance.