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Hedging Using Livestock Futures

James Sartwelle III and, James Mintert (March, 2002)

Summary

Livestock producers are sometimes faced with advantageous pricing opportunities prior to the time grain or livestock will be bought or sold in the cash market. In these situations producers can forward contract but such a contract requires delivery on a specified date of contracted quantitiy, and quality. Given the uncertainty associated with agricultural production, a more flexible alternative to forward contracting is sometimes desired. This document decribes one alternative: to use futures markets to establish an expected sale or purchase price.