Date of this Version
Producers often rely on cash market sales without the use of forward contracting, futures hedging and other risk management tools for several reasons. Some producers perceive that the use of hedging lowers their net price or increases price variability on average. Others view hedging as a risky price enhancement mechanism that is reliant on being able to successfully forecast futures prices. Selling crops or livestock that have not yet been raised, paying margin calls and dealing with brokers are all viewed as risk-inducing activities for some farmers and ranchers. Many producers indicate their use of forward contracting and hedging is limited most by their understanding of the market institutions, contracts and logistics of these risk management techniques.