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Willing to risk the basis in hogs?

Agriculture.com Staff 01/09/2006 @ 9:44am

Why do forward contracts for January delivery have such a wide basis? Wants to contract but hates the price.

We are still suffering the effects of 1998. The cash index price to the underlying futures contract got out past $12 that year and forward contracts will reflect that price. Producers who are willing to risk the basis should look at futures, options or insurance contracts if they want to look at something different than forward contracts. The insurance contracts due reflect the basis level to a certain price so they will be priced accordingly. A lot of it comes down to how much you want to know what your exact price will be. The more certain of the price the more you will have to give up to the packer issuing the contract.

Why do forward contracts for January delivery have such a wide basis? Wants to contract but hates the price.

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