Answer: Should sell futures contracts on buffalo

## 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.

Author: LeetQuiz Editorial Team