Rand Agri briefly explains these price risk instruments below:

1. Commodity futures – contracts to buy or sell a commodity at a specified future date.
   a. Futures contracts are regulated and traded on exchanges within standardised terms of the quantity and characteristics of the underlying commodity.
   b. Futures contracts are based on a future sale of a commodity, they are typically cash-settled and rarely end in physical delivery
2. Options are instruments allowing buyers and sellers of a commodity to lock in a minimum and maximum price, respectively.
   a. The buyer of an option pays the counterparty a premium for the right to buy or sell an underlying commodity at a pre-specified price (“strike price”) on or before an expiration date.
   b. Call options give the holder the right to buy the underlying commodity, while put options represent the right to sell the underlying commodity.
   c. Options require no obligation to buy or sell a commodity and, if the options are not used, the premium is the only cost to the holders.