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Potential demand for hedging by Australian wheat producers

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  • Simmons, Phil
  • Rambaldi, Alicia N.

Abstract

The potential for hedging Australian wheat with the new Sydney Futures Exchange wheat contract is examined using a theoretical hedging model parametised from previous studies. The optimal hedging ratio for an `average' wheat farmer was found to be zero under reasonable assumptions about transaction costs and based on previously published measures of risk aversion. The estimated optimal hedging ratios were found by simulation to be quite sensitive to assumptions about the degree of risk aversion. If farmers are significantly more risk averse than is currently believed, then there is likely to be an active interest in the new futures market.

Suggested Citation

  • Simmons, Phil & Rambaldi, Alicia N., 1997. "Potential demand for hedging by Australian wheat producers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(2), pages 1-12.
    • Handle: RePEc:ags:aareaj:118012
    DOI: 10.22004/ag.econ.118012
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    References listed on IDEAS

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    Cited by:

    1. Rajiv Seth & Valeed A. Ansari & Manipadma Datta, 2008. "Hedging Rainfall Risk by Farmers Growing Soyabean in Jhalawar District," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 2(2), pages 199-212, June.
    2. Williams, John & Malcolm, Bill, 2012. "Farmer decisions about selling wheat and managing wheat price risk in Australia," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 20, pages 1-10.
    3. Simmons, Phil, 1999. "Does Separation Theorem Explain Why Farmers Have So Little Interest In Futures Markets?," Working Papers 12933, University of New England, School of Economics.
    4. East, Miriam, 2005. "Issues Of Geographical Basis Risk In Weather Derivatives For Australian Wheat Farmers," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 137861, Australian Agricultural and Resource Economics Society.
    5. Simmons, Phil, 2002. "Why do farmers have so little interest in futures markets?," Agricultural Economics, Blackwell, vol. 27(1), pages 1-6, May.

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