Whisenhunt explained that many farmers who hedge may be more comfortable buying options for risk management purposes from their local cash market outlets. In addition to enhancing local marketing efforts, ag trade options can also be customized to the risk management needs of individual farmers. The Arkansas farmer said many commercial feedlots, for example, offer ranchers complete management services, including procurement of cattle, feed and cash cattle marketing. Some also offer hedging services, but cattle owners must open their own brokerage accounts and meet necessary margin requirements. Both may gain from the transaction.
Ranchers gain a degree of certainty in their marketing program.
Commercial feedlot operators are in a better position to market services and may be able to take advantage of their expertise in feed purchasing and cattle marketing. Buy-sell agreements among commercial entities are common and legal, but the same activity by producers is prohibited. Unfortunately, producers are, for the most part, prohibited from using the same risk management tools that are available to others further up the marketing stream. Legal Notice American Farm Bureau Federation, Farm Bureau and the FB Logo are registered service marks of the American Farm Bureau Federation. Voice of Agriculture is a registered service mark of the American Farm Bureau Federation.