A note on price futures versus revenue futures contracts

Here we consider the hedging roles of a price futures contract versus a revenue futures contract. In the absence of idiosyncratic output risk, the revenue contract almost always dominates the price contract. Idiosyncratic Output risk provides conditions under which the price contract should dominate. When production risk is largely idiosyncratic, a producer with an anticipated long actuals position might combine a long revenue futures position with a short price futures position. (C) 2004 Wiley Periodicals, Inc.