For about 50 years, the U.S. grain marketing system provided
price risk management tools to producers by offering various cash grain contracts.
One of the strengths of
this system is that grain buyers (generally, grain elevators)
have the flexibility to respond to marketplace demands and to
provide contracts appropriate for individual producer situations.
Producers should carefully evaluate a contract's risk/reward
profile before entering into any contract to make sure that their
financial situation, production prospects, and personal preferences
for risk are consistent with a specific cash grain contract or
marketing strategy.
Why Should Producers Consider Cash Grain Contracts?
The changes in farm support programs and continuing expansion in global trade, suggest that there
will be increased risk and volatility in cash grain markets. Under these conditions,
there is a greater need for contracts and other strategies to help manage risks.
What Type of Cash Grain Contracts Are
Available?
There are a wide range of cash grain contracts available, including Fixed Price
Contracts, Basis Contracts, Deferred Price Contracts, Basic Hedge-to-Arrive Contracts,
and Minimum Price Contracts.
Before using any contract or strategy, a producer should
become thoroughly familiar all of its terms and conditions.
To find out more about cash contracts and form a comprehensive
marketing strategy that will manage risk and help optimize prospects
for increasing operating income from markets, producers should
contact their local grain elevator. Not all contracts/strategies
are available from every elevator. The instruments available may
depend on local marketing practices and marketplace demand from
producers. Elevator personnel can help producers interested in this type of risk
management and can provide them with more detailed information.
Mention of product names or firms does not
necessarily constitute endorsement by the Risk Management Agency
or the U.S. Department of Agriculture over others not
mentioned, and is for information purposes only.
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