Agriculture is one of the most important practices to sustaining life as we know it. Even though we often take farmers for granted, there’s no carrying on without them. Despite the convention that growing crops or raising livestock seems easy, farmers are forced to weather countless variables that can render their entire year’s effort useless. Like all businessmen, farmers regularly try to reduce such risk through things like insurance policies. Another risk-reducer comes in the form of agricultural futures.
What Is a Future?
Not as in past, present, and future, silly! Futures are financial contracts in which a seller agrees to sell an asset to a buyer at a set point in the future for an agreed-upon price. One of the most common ways that investors use futures is to hedge against alternative outcomes that those investors didn’t think would take place.
How Do Futures Tie Into Agriculture?
As with all asset markets, agricultural markets have tons of variables that can affect the prices of crops and livestock in the future. For example, even though cattle prices could be high one year, they could be at all-time lows in a few months’ time. Rather than welcoming such risk, farmers often secure the sale of the vegetables, fruits, legumes, or livestock they raise using agricultural futures, foregoing the opportunity of hitting it big or earning too little.
How Do Farmers Maximize Futures’ Potential?
To maximize the trade potential of futures, farmers in Fort Collins, CO, try to predict the future price of their goods and sell options at those prices. Farmers like to sell futures in volatile markets to earn more money. They also like selling when interest rates are low.
At Compass Ag Solutions, we know all about hedging against risk as it relates to agriculture. We can help you learn about agricultural futures and whether selling them is right for you or not. We also offer many other risk management strategies for farmers – not just futures. For more information, contact Compass Ag Solutions at today.