Contract

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Written or oral agreement spelling out the parties’ understanding of how a commodity is to be produced and/or marketed, including specifications for quantity, quality, and price. Marketing contracts are commonly used for crops, while production contracts are more prevalent in the livestock industry. Contracts contrast to cash markets. Cash markets continue to dominate the agriculture sector, accounting for almost 70% of farm commodity sales in 1997. However, contracting could likely continue to grow as a risk management tool for farmers and a coordination tool for processors. Futures contracts provide a way to manage price risk that typically do not involve actual delivery of commodities.


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