Ag Decision Maker Activity
Hedging vs. Forward Cash Contracting
File A2-62
Name:________________________________________
You are an extension agent in your local county’s extension office. A farmer has
called and left a message with your office assistant asking for assistance with
marketing his corn crop. He is ready to price his crop, but doesn’t know which
marketing tool to use. Before returning his call, you acquire a copy of File A2-62
called ‘Hedging vs. Forward Cash Contracting’. After reading through the
information provided, you return the farmer’s call. The conversation goes as
follows, please answer the farmer’s questions completely and appropriately.
Farmer Frank: I am considering hedging my crop. I have always used forward
cash contracts, but I am now considering hedging. When I hedge who do I
contact?
Extension Agent:
Farmer Frank: I am expecting to harvest approximately 9000 bushels of
corn. When Hedging, are there certain contract sizes that must be used
and what are the sizes?
Extension Agent:
Farmer Frank: If I choose to use hedging, will I have to set money aside
today? Will I ever have to add to that initial deposit?
Extension Agent:
Ag Decision Maker Activity Continued…
Hedging vs. Forward Cash Contracting
File A2-62
Farmer Frank: I realize that the average price varies as the basis changes
when hedging, does it also vary in forward cash contracting?
Extension Agent:
Farmer Frank: What happens if I have a poor crop and I cannot fulfill
my contract if I forward cash contract all my expected crop?
Extension Agent:
Farmer Frank: What happens if I decide that I do not want to deliver the
crop at the end of the contract? Can I get out of the forward cash
contract? Can I get out of the hedge?
Extension Agent:
Farmer Frank: Delivery is required when using forward cash contracting. Is
delivery required for hedging?
Extension Agent:
Farmer Frank: I have limited knowledge in the area of marketing. Which
option is more complex?
Extension Agent:
Ag Decision Maker Activity Continued…
Hedging vs. Forward Cash Contracting
File A2-62
Farmer Frank: I heard from Slick Steve that the hedging transaction costs money.
What does that cost usually average (per bushel)?
Extension Agent:
Farmer Frank: Is it possible to get a lower price than you expected when using
hedging?
Extension Agent:
Farmer Frank: Which option do you think is best for me, given my situation?
Extension Agent:
. . . and justice for all
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race,
color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not
all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To
file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and
Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964.
Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture. Jack M. Payne, director, Cooperative Extension Service, Iowa State University of Science and
Technology, Ames, Iowa.