USDA: Larger Farmers Use More Futures, Options, And Marketing Contracts

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U.S. farmers can use a variety of market tools to manage risks. With a futures contract, the farmer can assure a certain price for a crop that has not yet been harvested.

An option contract allows the farmer to protect against decreases in the futures price, while retaining the opportunity to take advantage of increases in the futures price.

Futures and options usually do not result in actual delivery of the commodity, because most participants reach final financial settlements with each other when the contracts expire. In a marketing contract, by contrast, a farmer agrees to deliver a specified quantity of the commodity to a specified buyer during a specified time window.

Corn and soybean farms account for most farm use of each of these contracts, and larger operations are more likely to use them than small.

With more production, larger farms have more revenue at risk from price fluctuations, and therefore a greater incentive to learn about and manage price risks.

Fewer than 5 percent of small corn and soy producers used futures contracts, compared with 27 percent of large producers. Less than 1 percent of small corn and soy producers used options, compared with 13 percent of large producers.

And about 19 percent of small corn and soy producers used marketing contracts, compared with 58 percent of large producers.

This chart is based on data found in the Economic Research Service report, Farm Use of Futures, Options, and Marketing Contracts, published October 2020.

It also appears in the November 2020 Amber Waves feature, “Corn and Soybean Farmers Combine Futures, Options, and Marketing Contracts to Manage Financial Risks.”

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