This research contributes to the understanding of the role of forward contracting, market structural features, and product characteristics as determinants spot price levels and volatility. In the theoretical model setting, we analyze the optimizing behavior of agents who produce and purchase commodities by using contract, and derived the individual supply and demand functions under price uncertainty and risk aversion. Stochastic simulation is further used to generate price series from which inferences are drawn concerning price levels and volatility associated with each scenario. Past studies have been empirical and found mixed evidence that the spot price is either inversely or not related to the incidence of contract use. Given the mixed empirical evidence, we re-examine the implications of contracting on cash (or spot) market price level and price volatility in this research based on Taiwan paddy rice market. Our results is that contracting can lead to reduced farmer prices received in spot market, not only due to the residual nature of spot markets that operate in conjunction with forward contracting, but also due to the adjusted spot demand by retailers. We find that as contracting increases, spot price levels decrease and spot price volatility increases.