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


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  • Jordaan, Henry
  • Grove, Bennie
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    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€, “Distrust of the marketâ€, and “Bad experiencesâ€. 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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    Bibliographic Info

    Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

    Volume (Year): 46 (2007)
    Issue (Month): 4 (December)

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    Handle: RePEc:ags:agreko:7049

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    Keywords: Forward pricing; Logit; Factor analysis; Agricultural Finance; Risk and Uncertainty;


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    1. Ani L. Katchova & Mario J. Miranda, 2004. "Two-Step Econometric Estimation of Farm Characteristics Affecting Marketing Contract Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 88-102.
    2. Davis, Todd D. & Patrick, George F. & Coble, Keith H. & Knight, Thomas O. & Baquet, Alan E., 2005. "Forward Pricing Behavior of Corn and Soybean Producers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(01), April.
    3. McNew, Kevin & Musser, Wesley N., 2000. "Evidence Of Farmer Forward Pricing Behavior," Working Papers 28568, University of Maryland, Department of Agricultural and Resource Economics.
    4. 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.
    5. Sartwelle, James D., III & O'Brien, Daniel M. & Tierney, William I., 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.
    6. Isengildina, Olga & Hudson, 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.
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    Cited by:
    1. Jordaan, Henry & Grove, Bennie, 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.
    2. Strydom, D.B. & Grove, Bennie & Kruger, Y. & Willemse, B.J., 2010. "Stochastic Efficiency Analysis Of Alternative Basic Maize Marketing Strategies," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96812, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).


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