Explanation

This question appears to be incomplete in the provided text, but based on the context and standard hedging principles:

The farmer should sell futures contracts on buffalo

Reasoning:

• The farmer owns the physical buffalo herd (long position in the spot market)
• To hedge against price declines, he needs to take an opposite position in the futures market
• By selling futures contracts:
  • If buffalo prices decline:
    • He loses money on his physical herd
    • But gains money on his short futures position
    • The gains from futures offset the losses from the physical position

This is a classic short hedge scenario where a producer hedges against falling prices by selling futures contracts. The farmer is long the physical asset, so he needs to go short in the derivatives market to create a protective hedge.