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Commodity Options as Price Insurance for Cattlemen

R. Curt Lacy, Andrew Griffith and, John McKissick (June, 2014)

Summary

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.