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Grain Price Options Fence

Don Hofstrand (April, 2022)

Summary

During periods of high prices, farmers are often interested in forward pricing crops. However, many are concerned about using forward cash contracts, hedge-to-arrive contracts, or hedging for fear that prices may go even higher. Buying put options would relieve these worries. But premiums to buy puts rise sharply as prices become more volatile. Building a fence by using options is an alternative you might want to consider.