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Why Do Farmers Forward Contract In Factor Markets?

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Author Info

  • Haydu, John J.
  • Myers, Robert J.
  • Thompson, Stanley R.

Abstract

This study investigated farmers' incentives to forward purchase inputs. A model of farmer decision making was used to derive an optimal forward contracting rule. Explicit in the model was the tradeoff between the quantity of input to be purchased in advance, and the remaining portion to be purchased later on the spot market. Results indicated that the primary reasons farmers contract inputs are to reduce risk and to speculate on favorable price moves. A numerical example of fertilizer used in corn production indicated that the size of the price discount was the dominant factor in forward contracting decisions.

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File URL: http://purl.umn.edu/30369
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Bibliographic Info

Article provided by Southern Agricultural Economics Association in its journal Southern Journal of Agricultural Economics.

Volume (Year): 24 (1992)
Issue (Month): 01 (July)
Pages:

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Handle: RePEc:ags:sojoae:30369

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Web page: http://www.saea.org/jaae/jaae.htm
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Related research

Keywords: Farm Management;

References

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  1. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
  2. Chavas, Jean-Paul & Pope, Rulon D., 1982. "Hedging And Production Decisions Under A Linear Mean-Variance Preference Function," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(01), July.
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Citations

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Cited by:
  1. Todd H. Kuethe & Mitch Morehart, 2012. "The profit impacts of risk management tool adoption," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 104-116, March.
  2. Daberkow, Stan G. & McBride, William D., 2004. "Corn Producers┬┤ Response To The 2001 Nitrogen Fertilizer Price Increase," 2004 Annual meeting, August 1-4, Denver, CO 20271, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Perry, Janet E. & Mishra, Ashok K., 1999. "Forward Contracting Of Inputs: A Farm-Level Analysis," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2).

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