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Abstract

By using commodity futures, options, or cash forward contracts, farmers can broaden their pricing alternatives and partly protect themselves against price declines within a given year, but they cannot effectively stabilize their incomes across years. Each of these types of contracts sets a price or a price limit for a commodity to be delivered at a later date; futures and options contracts are standardized and traded on exchanges; a commodity option gives the holder the right to buy or sell a futures contract at a specified price during a designated time interval. Government programs to expand use of such contracts by farmers generally would not raise or stabilize market prices or farmers' incomes unless subsidies were involved. Such subsidies would be difficult to administer and offer few advantages over conventional farm programs.

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