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Risk Management and Reality: Farmers’ Use of Futures Markets - farmdoc daily

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Note: This article was written by University of Illinois Agricultural and Consumer Economics Ph.D. student Aayush Raj Dhakal and edited by Joe Janzen. It is one of several excellent articles written by graduate students in Prof. Janzen’s ACE 527 class in advanced agricultural price analysis this fall. Futures and options markets are often presented as a vital tool for farmers to hedge price risks associated with crop production. The textbook example is a corn farmer who offsets the risk of price declines for his or her growing crop by selling a corn futures contract at planting and buying it back at harvest. Gains or losses in the value of the crop over this period are offset by corresponding losses or gains in the value of the futures position, allowing the farmer to ‘lock in’ prices ahead of the harvest. But how commonly do farmers actually use futures and options as a marketing tool? In this article, we assess the use of futures markets among farmers. Using a basic definition of act

Share This Twitter Facebook LinkedIn download PDF Aayush Raj Dhakal and Joe Janzen Department of Agricultural and Consumer Economics University of Illinois December 27, 2024 farmdoc daily ( 14 ): 234 Recommended citation format: Dhakal, A. R. and J. Janzen. " Risk Management and Reality: Farmers’ Use of Futures Markets ." farmdoc daily ( 14 ): 234, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, December 27, 2024. Permalink Note: This article was written by University of Illinois Agricultural and Consumer Economics Ph.D. student Aayush Raj Dhakal

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