Cattle

Cattle basis risk refers to the uncertainty and potential financial impact arising from the difference between the local cash price of cattle and the futures of cattle traded on exchanges. Futures contracts and options are arranged so one feeder cattle contract is 50,000 pounds of feeder cattle, while one fed cattle contract is 40,000 pounds of fed cattle. However, many cattle farmers do not produce enough heads to sufficiently meet the specifications in the futures contract. Livestock Risk Protection Insurance (LRP) is a tool to reduce basis risk for producers by indemnifying local cash...