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August 26, 2026
For more than a century, futures exchanges have helped farmers and agribusinesses deal with a key challenge: nobody knows what prices will be in the future. A corn producer does not know the harvest price in advance; a feedlot does not know future feed costs or cattle prices. Futures markets developed, in large part, to help businesses manage those risks.
But something different is happening in the futures industry. People can increasingly trade contracts not just on future prices, but on whether particular events will happen: Will the Federal Reserve cut interest rates? Will a candidate win an election? Will a team win a football game?
These are called event contracts, and the markets where they are traded are commonly called prediction markets. The idea is not new (we discussed event contracts in Cornhusker Economics on 11/02/2022), but we are now witnessing rapid growth, expanding subject matter, and involvement of major companies in this market. Futures trading, forecasting, and sports betting are beginning to overlap. Why should we pay attention?
A market where you trade “yes” or “no”
The CME Group essentially describes its prediction-market contracts as: prices range from $0.01 to $0.99 and correspond to the market’s view of the likelihood of an event, with settlement ultimately occurring at $1 or zero.
Suppose a market offers this contract: Will USDA report the U.S. corn yield above 185 bu/acre? Traders choose Yes or No rather than predicting the exact yield. If the Yes contract trades for 70 cents and USDA ultimately reports a yield above 185 bushels, it settles at $1. The buyer gains $0.30 before fees. If yield is 185 bushels or less, it settles at zero and the buyer loses the $0.70 paid. Thus, prediction markets allow us to observe how traders’ collective expectations about an event change over time based on traded prices.
Research indicates that prediction markets can aggregate dispersed information and provide useful forecasts, although their quality depends on liquidity, participation, incentives, and market design.
When did prediction markets start?
Modern prediction markets have roots in academic research. A well-known example is the Iowa Electronic Markets, developed at the University of Iowa in 1988, where participants traded real-money contracts tied mainly to elections and economic outcomes. Researchers wanted to know whether markets could combine information held by many people into useful forecasts.
Organized betting markets surrounding U.S. presidential elections existed even earlier, from the late nineteenth century through the first half of the twentieth century. What has changed is scale and commercialization. Prediction markets now cover economics, politics, sports, weather, cryptocurrencies, and more. During the 2026 FIFA World Cup alone, Reuters reported that Kalshi (a prediction market platform) recorded roughly $27 billion in trading volume and about 3 million users.
But this sounds like futures markets…
There are similarities. Prediction markets and futures markets both bring together people with different opinions about the future, produce publicly observable prices, allow speculation, and can potentially be used for risk management. But there is an important economic distinction.
A corn futures contract essentially asks, “What will corn be worth at a certain point in the future?” Hedgers use this contract to manage the price risk that exists in their business operations. This contract does not create risk for the hedgers but rather help them reduce price risk that is inherent to their business. Speculators take the other side of those trades, providing liquidity to the market and taking risks in hopes of earning a profit.
A corn-yield event contract asks whether yield will exceed a certain level. Its price can indicate yield expectations, and it might help manage an existing agricultural risk, although the hedge is less straightforward than with futures contracts.
A contract on whether Nebraska will win Saturday’s football game can also indicate expectations, but there is usually no pre-existing business risk to hedge. For a typical buyer, trading this contract creates a new financial risk.
The key distinction is not that futures are for hedging while prediction markets are for speculation. Both attract speculators. The more important question is whether trading is connected to an underlying economic risk somebody needs to manage. For corn, soybeans, cattle, and interest rates, the answer is clearly yes. For some event contracts, it may be yes. For many sports contracts, the connection is harder to establish.
Why is there so much discussion about this now?
First, there is the debate whether prediction markets are useful, or just another form of betting. Supporters emphasize the information they produce, i.e. contracts on inflation, Federal Reserve decisions, USDA crop yield, etc turn expectations into observable probabilities. Critics argue that producing a forecast may not justify treating every event contract as a financial derivative. A crop-yield contract and a football contract both produce probabilities, but their economic purposes may differ greatly.
Second, is a sports event contract a derivative or a sports bet? Traditional derivatives fall primarily under federal oversight (CFTC), while sports gambling has traditionally been regulated by states and tribal gaming authorities. Prediction-market companies argue that sports contracts on federally regulated exchanges fall under CFTC jurisdiction, while state regulators argue that calling a wager an “event contract” does not change its economic reality.
Third, what about insiders and manipulation? A farmer or a corn futures trader cannot individually determine the national crop or final market price. With event contracts, an athlete might trade on a game they play in, or a government employee might trade before an economic announcement. That is, people might trade on an event they can influence. The line between forecasting and influencing becomes difficult to draw. The CFTC has highlighted cases involving nonpublic information and other misconduct, and Reuters reported that Kalshi flagged hundreds of suspicious trades.
So, why should the agricultural industry care about this?
This may sound like just a debate about sports betting, but the implications for agriculture could be important.
Prediction markets could become useful agricultural forecasting tools. Agriculture is filled with uncertain events that lend themselves naturally to probability questions: Will U.S. corn yield exceed 185 bushels? Will rainfall fall below a critical threshold? Will Mississippi River levels disrupt barge traffic? Will USDA reduce ending stocks in the next WASDE report? Will Congress approve a particular farm policy provision?
A prediction market could continuously report what traders believe the probability of each event to be. It would not replace futures markets, USDA forecasts, weather models, extension services, or private forecasts, but could add another piece of information for agricultural decisions.
Some event contracts might also become risk management tools if they allow an agribusiness to hedge a particular event affecting its operations, e.g. river closures, disease outbreaks, or government trade decisions. But such a contract would need sufficient liquidity, objective settlement, and a payoff closely related to actual losses. Otherwise, it would just create another form of risk.
This is why event contracts should not automatically be dismissed as gambling. Some may have legitimate applications to agriculture and other industries.
Finally, what happens to futures exchanges matters to agriculture
The recent conversations between the CME Group and FanDuel illustrate another implication: prediction markets can be a commercial opportunity for futures exchanges. Simple, fully funded event contracts combined with a large consumer platform could bring new customers, fees, and revenue.
But this also raises a question for traditional futures users. For more than a century, futures exchanges have defended their economic role by highlighting how they provide risk transfer and price discovery for business operations in many markets such as agriculture, energy, metals, interest rates, and exchange rates. What happens if the public increasingly associates those same exchanges with betting on football games, elections, and entertainment events?
Perhaps nothing. Event contracts and agricultural futures may coexist comfortably and introduce millions of people to exchange-based markets. But controversy involving sports gambling, insider trading, or consumer losses could create regulatory and reputational consequences for the broader futures industry.
Where should we draw the line?
Prediction markets and traditional futures share a basic idea: people disagree about an uncertain future and they can trade based on their expectations. A futures price tells us what the market expects a commodity to be worth; an event-contract price tells us roughly how likely traders think a particular outcome is. Both can produce information, attract speculators, and, under the right circumstances, help manage risk.
But not every event contract serves the same purpose. A contract tied to crop yields or interest rates may help businesses understand or manage economic risk. A contract on Saturday’s football game may generate information and trading volume, but it looks much more like a conventional bet.
That distinction matters if futures exchanges expand into prediction markets. Agriculture depends on these exchanges for price discovery and risk management, so their evolution deserves attention. Ultimately, we are asking a bigger question here: what are futures exchanges for, and where should we draw the line between markets that help us manage an uncertain future and markets that simply let us bet on it?
Fabio Mattos
Associate Professor
Department of Agricultural Economics
University of Nebraska-Lincoln
fmattos@unl.edu