ABSTRACT
This chapter describes one major formalized means of limiting price risk: futures markets and their stepchild, options. Futures and options are means of controlling price risk. Despite the abstraction, the use of futures can be helpful, if not essential, in one aspect of livestock enterprises. For slaughter steers, an official livestock yard receipt specifying quantity, quality grades, yield grades, and estimated hot yields registers the delivery. The product refers to a specific quantity of a certain product grade. Futures contracts are so, detailing the product traded, the pricing terms, and delivery requirements. In practice, options are available for various contract months, with a range of different strike prices corresponding to each contract. The risk-reducing use of futures markets is referred to as hedging. The concept of a single placement strategy is to defer placing the hedge until some condition are met, and then to hold the hedge until the sale.
