Beef

One of the greatest risks cattle producers face is price risk. Price changes can come in the form of declining cattle prices for sellers, increasing cattle prices for buyers or increasing feed prices for feed users. Because of this risk, producers might want to “insure” feeder cattle, fed cattle or feed against unfavorable price movements, while still being able to take advantage of favorable price movements. Cattlemen have this opportunity by using the commodity options market.

In today’s farming environment of extreme price volatility and large debt commitments, most livestock producers need the security of one or more of the advantages offered by price risk management. Livestock producers who are selling products or purchasing inputs can do one of two things when making pricing decisions: accept the market price when they are ready to deliver products or purchase inputs, or reduce input and product price risks by using price risk management tools. One of these price risk management opportunities is available through futures markets contracts. This publication explains how livestock producers can use futures markets to manage price risk.