[grey_whiskers]

How do determine that actual demand is below the current price?

Require physical delivery of the commodity to the holder of the contract.

To take a related example, if you had a contract for 1000 pork bellies, and couldn't sell them, your lawn would be disgusting (apologies to Dave Barry). Cheers!

[palmer]

Require physical delivery of the commodity to the holder of the contract.

So if I'm an oil producer and the price falls below my cost of production, I'm not allowed to sell oil futures to maintain my income?

[SAJ]

Not at all. When you get delivery on a futures contract, all you get is a warehouse receipt for the goods involved.

Leave the bellies in the freezer forever, if you like, as long as you pay the monthly storage/insurance (the 'carry').

What happens in most cases, of course, is that the person receiving delivery either pays a fee to re-deliver, or pays 1 month's carry (in the spring) and sells the next month's futures, intending to deliver back the bellies at that point.

Tch, tch for that silly old canard about a yardfull of wheat or a yardfull of bellies.

[rabscuttle385]

...if you had a contract for 1000 pork bellies, and couldn't sell them, your lawn would be disgusting...

But at least it would repel Islamist terrorists.