Put options are a pricing tool with considerable flexibility for managing price risk.
The main advantages of a put option are protection against lower prices, limited liability with no margin deposits, and the potential to benefit from higher prices. Futures contracts alone cannot provide this combination of downside price insurance and upside potential. The put provides leverage in obtaining credit, assists in production management decisions, and has a formal set of contract provisions and known procedures for settling disputes. The cost is paid at the time of purchase and basis risk remains until fixed, or the crop is sold. Each option represents a standardized quantity linked to a futures contract, and trades must go through a commodity broker.