The use of price risk management tools by cattle producers

Purpose United States (US) cattle producers have tools to manage price risk, such as options contracts, futures contracts and livestock risk protection (LRP) insurance. However, there has been limited use of price risk management tools among beef cattle producers. The purpose of this research is to determine factors associated with the use of options contracts, futures contracts and LRP insurance. Design/methodology/approach We conducted a survey of US cattle producers about their use of LRP insurance, futures contracts and options to manage price risk. A multivariate probit model was estimated to understand what drives the likelihood of these price risk management tools. Findings We find most producers have never used any price risk management tools, but LRP was the most used (12.5%), followed by futures contracts (6%) and option contracts (5.5%). Producer age, herd size, risk preferences, perceived effectiveness at managing price risk and other factors affected the use of these tools. Interestingly, high risk tolerance results in an increased likelihood of using futures contracts, which is opposite to what was anticipated. Originality/value Findings inform industry stakeholders, educators and policymakers in developing effective educational programs for producers regarding price risk management. This article also broadens the body of knowledge on the acceptance of various price risk management among cattle producers.