Buying Hedge with Futures

Terry L Kastens, J. Mark Welch, and David Anderson ( January, 2009 )

Summary

Many bulk purchasers of agricultural commodities need price risk management tools to help stabilize input prices. Livestock feeders anticipating future feed needs or grain exporters making commitments to sell grain are two users of agricultural commodities who could benefit from input price management strategies. A common tool is a buying, or long, hedge using futures. Producers concerned with price fluctuations for agricultural inputs can use a buying hedge with futures to manage that price risk.

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