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Delivering Slaughter Steers on a Live Cattle Futures Contract

Summary

Although most hedgers do not actually make delivery on a live cattle futures contract, the threat of delivery is an important feature of the futures market. A producer who hedges using the futures market normally offsets the futures position by buying back a futures contract and selling the slaughter cattle on the cash market. However, there are times when it is advantageous to actually deliver on the contract. Actual delivery should be made only when the basis during contract maturity is wider than anticipated and greater than the delivery cost.