There are different types of orders that you can utilize using the futures market.
Often, farmers will use the futures market in lieu of cash marketing, as they may want the flexibility and liquidity of futures contracts. There is likely only a finite amount of expected production that most feel confident forward selling. Forward contracts establish a legal contract between the seller and a buyer.
Cash contracts shift risk and both parties have an obligation to uphold the agreement. Futures, on the other hand, are traded through a licensed commodity broker. While it is possible to turn futures contracts into deliverable contracts, it is estimated that well over 98% of all traded contracts are offset. This means when hedging, you sell futures, and at some point, will buy back this contract before it expires. The gain or loss can be applied to your final cash price when you sell your crop. For more, please click here.
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