Key Takeaways
- Kalshi is a federally regulated financial exchange in the United States which offers event contracts for prediction markets. On April 16 the company added a commodity hub to its contract offerings, allowing participants to trade on price outcomes of its new agricultural contracts using simple binary “yes/no” structures, creating a new asset class distinct from traditional futures.
- The lack of key stakeholder input into the listing of these new commodity contracts raises questions about market function, i.e., assisting in risk management or an alternative goal. The impact of these novel contracts on price discovery and in adoption rates remains to be seen. More research is needed to determine how and if they have applicability on farm risk management strategies.
- Structural differences between these contracts and futures could change market fundamentals because unlike traditional agricultural commodity futures, which involve potential physical delivery and convergence with cash markets, these cash-settled event contracts don’t involve physical delivery and may introduce features like 24/7 trading, turning elements traditionally tied to risk management and price discovery into speculative positions.
Background
Kalshi is a federally regulated financial exchange in the United States that allows users to trade contracts based on the potential outcomes of real-world events (sometimes called prediction markets). Historically, these contracts have been offered by other, non-U.S.-regulated exchanges for outcomes such as election results or economic indicators like GDP or inflation. There are several other non-U.S.-regulated exchanges offering event contracts such as Polymarket and International Brokers.
Prediction market exchanges make money by charging trading and settlement fees on transactions. This business model generates revenue from the spread between buy and sell prices and earns interest on the large pool of cash held in escrow. In addition, exchanges with contracts that result in accurate forecasting data can sell data feeds and market sentiment information.
Prediction market exchanges operate on the belief that the collective public can predict the outcome of future events accurately. By aggregating individual predictions, prediction market platforms claim to obtain a comprehensive outlook on probable futures while enhancing market efficiency.
On one hand, prediction contracts may have the potential to bring added price information and sentiment that could contribute to price discovery. Research is yet to be conducted, but the potential for prediction markets to create opportunities for lower volume market participants – such as small and medium-sized farmers with capital constraints – to utilize hedging-style instruments to manage risk is a potential outcome. For example, a small rancher with only a few head of cattle could use a prediction market contract as a hedging tool with a minimal investment, rather than opening a brokerage account and entering a futures position that would require significantly more capital.
Event Contracts
Despite the recent activity, prediction markets are not new and have existed for decades, starting with the Iowa Electronic Markets in the early 1990s. Prediction markets are platforms which trade products often called “event contracts.” These contracts operate as simple questions with a “yes or no” binary answer. For example, a contract could ask when the next Federal Reserve rate increase will occur with several yes or no options to choose from. The market price for the contract represents the collective probability of the event occurring, acting like a dynamic crowd-sourced, forecasting tool.
Events contracts are classified as “swap contracts” under the Commodity Exchange Act (CEA) and Dodd-Frank Act Wall Street Reform and Consumer Protection Act. The CEA broadly defines swaps to include contracts that provide a payout dependent on the outcome of an event that has potential financial, economic or other consequences. Since the payouts for events contracts rely entirely on the outcome of a specific event rather than the price movement of a physical commodity, events contracts are classified as swaps. Under the CEA, the Commodity Futures Trading Commission (CFTC) is given exclusive federal regulatory jurisdiction over commodity derivatives, including event-driven prediction markets. While event contracts have traditionally focused on outcomes such as economic indicators or political events, their structure can also be applied to commodity pricing, setting the stage for their expansion into agricultural markets.
A Novel Approach to Commodities
Kalshi expanded its offerings in mid-April by launching event contracts tied to additional commodities including natural gas, coffee, copper, sugar, corn, soybeans, wheat, nickel, diesel, lithium and cattle, adding to its existing markets for WTI and Brent oil, gold and silver. These contracts allow participants to trade on price outcomes using the same “yes/no” binary format, introducing a new way to engage with commodity markets. Kalshi’s ag commodity contracts were later removed and were not among its other listed commodity contracts as of June 18.
Kalshi contracts are cash settled using a binary structure that resolves to $1 per share for a winning side and $0 for the losing side. For example, if a contract for corn asks if the Dec. 26 corn futures will close above $5 in 2026, the winner of this “yes or no” binary contract would receive a $1 payout per share while the loser would get $0 when the contract expires. To verify the outcome, prediction market exchanges use a pre-established data source such as official government reports or specialized data networks such as Pyth.
The newly listed agriculture-related commodity contracts have raised concerns from stakeholders across the agricultural industry. Unlike traditional futures accounts that often require substantial margin deposits, Kalshi does not impose a minimum deposit requirement, allowing a greater pool of speculators to enter the marketplace.
One of the reasons futures exchanges require larger deposits to trade is because they offer leverage. Leverage is a way to trade where a market participant can control a larger investment with a smaller amount of their own money. For example, a person might put down $1,000 and be able to trade as if they had $10,000. This can increase potential gains but also increases risk. Prediction markets do not currently use leverage but if it were offered, the minimum capital requirements to execute trades would likely rise, potentially offsetting the benefits of expanded access to smaller independent farmers and hedgers.
Market Integrity
To understand the implications of these event contracts, it is important to examine how they differ from traditional futures markets.
Futures markets were originally developed for two reasons:
- To provide a method for agricultural producers and end users to protect themselves from price variability;
- To create a central, transparent marketplace where supply and demand could dictate fair, reliable price discovery.
The introduction of commodity event contracts raises several questions about their effects on futures contract liquidity, price discovery and the ability of farmers and ranchers and other commercial stakeholders to effectively manage risk. For example, early versions of these contracts allowed settlement beyond the hours of underlying futures markets. A soybean contract tied to a 5:00 p.m. settlement could remain active long after the Chicago Mercantile Exchange’s (CME) 2:15 p.m. close. Although Kalshi later aligned trading hours with futures markets following industry feedback, the initial design highlighted potential structural differences, including the 24/7 trading advertised by the company. These differences point to broader concerns about how event contracts could influence core market mechanisms, particularly liquidity.
CME defines volume, often used as an indicator of liquidity, as the total number of futures and options contracts traded over a given period. Kalshi defines volume differently for event contracts: it is the maximum potential payout, counting both sides of each trade. For example, the “Soybeans price on Apr 17, 2026, at 5 p.m. EDT” contract had a $29,123 in volume. Since each side can pay out $1, each trade counts as $2 of volume, reflecting about 14,562 transactions, which can be useful for gauging liquidity.
Liquidity
Liquidity refers to how easily assets can be bought and sold without causing major price swings. Liquidity is strong when many participants are trading at the same time. In traditional futures markets, concentrated trading during set hours supports stable price discovery. If prediction markets attract traders away from traditional commodity markets, liquidity could decline. Because price discovery in physically delivered and cash-settled markets depends on strong liquidity, even small indirect shifts in trading behavior could have meaningful impacts on farmers and ranchers who rely on stable and reliable futures markets to manage risk.
Physical Delivery vs. Cash Settlement
Many commodity futures are designed around real-world delivery – such as delivering corn at a set time and place – so prices ultimately converge with actual supply and demand. This convergence is critical for producers and end users who rely on accurate price signals. In contrast, some contracts (e.g., energy or index-based) are cash-settled, meaning that, at expiration, positions are resolved financially rather than through physical delivery, using a final settlement price.
Physically delivered contracts typically have deep liquidity and generate reliable daily and final prices through trading activity alone. Cash-settled contracts function differently, often relying on inputs from brokers or price reporting agencies to determine settlement values. Because they do not require delivery, their prices may reflect estimates or negotiated benchmarks rather than true market fundamentals, potentially weakening their link to real conditions and reducing their reliability for farmers seeking to hedge production risk.
Interactions with Crop Insurance
The competition between futures and prediction markets could also have unintended consequences for the federal crop insurance program too. Research is needed on how prediction markets impact price discovery, market volatility and how they may intersect with crop insurance products that are largely tied to information derived from the futures and options market. For example, should prediction contracts increase the volatility of the associated derivative instrument, it could increase the premium cost for the associated crop or livestock insurance policy.
Conclusion
Kalshi’s entry into agricultural commodities marks an unprecedented shift in U.S. derivatives markets. While prediction markets offer novel, low-cost pathways for market participation that could potentially broaden access to risk-management tools, they also raise fundamental questions about their compatibility with established futures markets.
Prediction markets are designed to offer an innovative, crowd-driven perspective on future events, but their design is substantially different from traditional futures markets that underpin price discovery and risk management in agriculture. The lack of physical delivery, difference in settlement methods and potential for extended trading hours may fragment liquidity and disconnect the markets from the supply and demand dynamics relied upon by traditional futures markets.
As prediction markets and other trading tools evolve, the challenge for regulators and market participants will be to balance innovation with the preservation of market integrity. Ensuring that these new instruments do not undermine the core purposes of agricultural futures–risk management and transparent price discovery–will be critical to maintaining confidence and functionality across the wider commodity landscape.