Trading in derivatives protects the farmers from the risk of their crop value going below the cost price of their production. CBOT and CME are two of the largest commodity derivative exchanges in the world. This article talks in greater detail about the commodity derivative, its evolution with some historical evidences.

Commodity derivatives are not a new product any more. Farmers first started trading in derivatives to protect themselves from the risk of their crop value going below cost of actual production. The Chicago Board of Trade (CBOT) established in 1848 was the first organized exchange offering derivatives on various commodities. Next, the Chicago Produce Exchange was formed which is now known as Chicago Mercantile Exchange (CME). Today, CBOT and CME are two of the world's largest commodity derivatives exchanges.

Participants in commodity markets have always been exposed to various types of risks. These include the likes of price risk, demand risk, systematic risk, etc. To mitigate these risks, producers earlier used to book forward contracts with buyers in order to lock in their margins in advance.

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