Few producers have an understanding of hedging or how it can help profitability. Hedging is simply a tool to lock in an acceptable future price for hogs, one that will insure profits or minimize losses, depending on the market. A futures contract covers 30,000 pounds, or about 130 230-pound pigs. Half and quarter contracts are also available. The amount depends on the number of contracts and the broker.
Options are a newer method of forward pricing.
An options contract is an insurance policy. Hedging locks in a future price. Options lock in a minimum price. Options contracts are handled similar to other futures contracts-through a broker. When selecting a selling point consider price, transportation, integrity of the market, and additional services.