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Factors Affecting Maize Producers Adoption of Forward Pricing in Price Risk Management: The Case of Vaalharts

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Author Info
Jordaan, H.
Grove, B.
Abstract

Logistic regression is employed to analyse the factors which influence the decision of whether or not the respondent used forward pricing methods during the 2004/05 maize production season. Forward pricing methods include cash forward contracting and hedging with futures contracts and/or options, through the South African Futures Exchange (SAFEX). Based on the results, the use of forward pricing is associated with lower levels of risk aversion and higher levels of human capital. Factor analysis is employed to reduce the dimensionality of the personal reasons which help to interpret the underlying, common factor of the personal reasons why farmers are reluctant to use forward pricing methods. Three factors were extracted and were labelled “Lack of capacityâ€Â, “Distrust of the marketâ€Â, and “Bad experiencesâ€Â. The results from the factor analysis confirm the finding that farmers need higher levels of human capital to use forward pricing methods and that farmers do not believe that the forward pricing market is effective. Education should furthermore, focus more on the practical application of alternative forward pricing methods and not purely on the benefits of the use of forward pricing methods.

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File URL: http://purl.umn.edu/7049
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Publisher Info
Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

Volume (Year): 46 (2007)
Issue (Month): 4 (December)
Pages:
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Handle: RePEc:ags:agreko:7049

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Web page: http://www.aeasa.org.za/
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Related research
Keywords: Forward pricing; Logit; Factor analysis; Agricultural Finance; Risk and Uncertainty;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Sartwelle, James, III & O'Brien, Daniel & Tierney, William, Jr. & Eggers, Tim, 2000. "The Effect Of Personal And Farm Characteristics Upon Grain Marketing Practices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April. [Downloadable!]
  2. Isengildina, Olga & Hudson, M. Darren, 2001. "Factors Affecting Hedging Decisions Using Evidence from the Cotton Industry," 2001 Conference, April 23-24, 2001, St. Louis, Missouri 18970, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
  3. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jordaan, H. & Grove, B., 2008. "Factors affecting the use of forward pricing methods in price risk management with special reference to the influence of risk aversion," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(1), March. [Downloadable!]
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