How Does a Short Hedge Work?
Livestock producers who are feeding cattle or hogs for market can use a short hedge to offset their risks of prices falling by the time they’re ready to sell. First, they sell futures contracts to cover the livestock they plan to market. When the livestock are ready for market, they buy back the futures contracts and sell in the cash market simultaneously. The short hedge allows them to lock in a price for the cattle or hogs to the extent that the basis turns out as expected.
Details: The Short Hedge