If commodities are stored, the risk continues until the date of sale. The nature of the market itself creates the second condition of market risk. Because of the large number of agriculturists producing similar products, they cannot, as individuals, have much influence on the market price. The individual producer has very little market power. Forward pricing through futures and cash contracts are methods of reducing market risk by entering into a commitment prior to the physical delivery of the commodity to market.
Fundamental differences do exist with regard to the procedure followed and the results produced.
The producer promises to deliver a specified quantity by some future date for an agreed upon price. Since the contract is a legal and binding instrument, the contract sale is generally final and actual delivery is the normal route by which the producer fulfills his commit- ment. Generally a contract will contain some provisions for a financial settlement if the producer is unable to make delivery. A cash contract allows the seller to fix the price he will receive for his product. By entering into a cash contract with a local buyer, the seller can lock-up a realistic market outlet.