Weather, insects, disease, world conditions and other circumstances can affect production and costs. The actual market price which will exist when the commodity being produced is ready for sale is also unknown. Good management can at least partially compensate for the uncertainty associated with these and other unknowns. The objective is to discuss two alternatives available to producers for reducing the market gamble or market risk. The latter are also referred to as deferred delivery contracts.
Market risk contains two major parts.
Price risk exists because the producer does not know, until the actual sale of his product, what price he will receive. Uncertainty as to where the producer can market his product is market outlet risk. Under normal conditions market outlet risk is of little concern in Nebraska, but there have been times when it has been quite substantial. Market risk in agriculture is caused by two conditions. First, there is the time lag between the start and completion of the production cycle.