IDEAS home Printed from https://ideas.repec.org/p/ags/aare06/139793.html
   My bibliography  Save this paper

Selling raw wool by forward contract: A qualitative analysis of the pros and cons

Author

Listed:
  • Jackson, Elizabeth
  • Quaddus, Mohammed
  • Islam, Nazrul
  • Hoque, Zohurul
  • Stanton, John

Abstract

Australian farmers have been warned of increases in wool auction price fluctuations since 2000 (Kingwell), yet 85% of producers continue to sell their wool on the highly volatile, open-cry auction system (Bolt 2004). It has been suggested that forward selling is one method available to farmers to manage price risk and stabilise income (Liddle 2004). This research is a qualitative analysis of the pros and cons for forward contracting. Focus groups were conducted in regional Western Australia to gather the opinions of wool producers to assess why this selling method, despite its advantages, is over-shadowed by the auction system. Results suggest that income stabilisation and price risk management were the two major pros of the forward contract method of selling raw wool although these were strongly over-shadowed by the list of cons: pricing, complexity, dominance of the auction system and production risks.

Suggested Citation

  • Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Hoque, Zohurul & Stanton, John, 2006. "Selling raw wool by forward contract: A qualitative analysis of the pros and cons," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139793, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare06:139793
    DOI: 10.22004/ag.econ.139793
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/139793/files/2006_jackson.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.139793?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price and Yield Uncertainty," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 18(2), pages 139-146, December.
    2. Kingwell, Ross, 2000. "Price Risk Management for Australian Broad acre Farmers: some observations," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 8, pages 1-12, June.
    3. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price And Yield Uncertainty," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 18(2), pages 1-8, December.
    4. Champion, S.C. & Fearne, Andrew, 2001. "Alternative Marketing Systems For The Apparel Wool Textile Supply Chain: Filling The Communication Vacuum," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 4(3), pages 1-20.
    5. Pluske, Johanna M. & Fraser, Rob W., 1995. "Can Producers Place Valid and Reliable Valuations on Wool Price-Risk Information?," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 63(02), pages 1-8, August.
    6. Fraser, Rob W., 1997. "Seasonal variability, land values and willingness-to-pay for a forward wheat contract with protein premiums and discounts," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(2), pages 1-17.
    7. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
    8. Fraser McLeay & Tony Zwart, 1998. "Factors affecting choice of cash sales versus forward marketing contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 14(4), pages 299-309.
    9. Goss, Barry A, 1987. "Wool Prices and Publicly Available Information," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 225-236, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Stanton, John & Hoque, Zohurul, 2007. "A Multi-Disciplinary Approach For Determining Adoption Of Agricultural Price Risk Management Strategies," 81st Annual Conference, April 2-4, 2007, Reading University, UK 7985, Agricultural Economics Society.
    2. Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Stanton, John, 2008. "A mixed-method approach for determining the risk and complexity farmers associate with using forward contracts," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 42305, Agricultural Economics Society.
    3. Bradley Isbell & Andrew M. McKenzie & B. Wade Brorsen, 2020. "The cost of forward contracting in the Mississippi barge freight river market," Agribusiness, John Wiley & Sons, Ltd., vol. 36(2), pages 226-241, April.
    4. Monjardino, M. & McBeath, T. & Ouzman, J. & Llewellyn, R. & Jones, B., 2015. "Farmer risk-aversion limits closure of yield and profit gaps: A study of nitrogen management in the southern Australian wheatbelt," Agricultural Systems, Elsevier, vol. 137(C), pages 108-118.
    5. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Are farmers in low-rainfall cropping regions under-fertilizing? An Australian case-study," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124976, International Association of Agricultural Economists.
    6. Asplund, Nathan M. & Forster, D. Lynn & Stout, Thomas T., 1989. "Participation By Farmers In Forward Contracting And Hedging," 1989 Annual Meeting, July 30-August 2, Baton Rouge, Louisiana 270516, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. T. P. Zacharias & D. A. Zaunbrecher & H. D. Traylor & B. E. McManus, 1987. "An analysis of preharvest soybean marketing strategies in louisiana using forward and futures contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 3(4), pages 413-426.
    8. Monjardino, Marta & McBeath, T. & Brennan, Lisa E. & Llewellyn, Rick S., 2012. "Revisiting N fertilisation rates in low-rainfall grain cropping regions of Australia: A risk analysis," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124339, Australian Agricultural and Resource Economics Society.
    9. Heifner, Richard G. & Wright, Bruce H., 1989. "Potentials for Substituting Farmers' Use of Futures and Options for Farm Programs," Agricultural Economic Reports 308136, United States Department of Agriculture, Economic Research Service.
    10. Deane, Paul & Malcolm, Bill, 2006. "Do Australian woolgrowers manage price risk rationally?," AFBM Journal, Australasian Farm Business Management Network, vol. 3(2), pages 1-7.
    11. Thamo, Tas & Addai, Donkor & Kragt, Marit E. & Kingwell, Ross S. & Pannell, David J. & Robertson, Michael J., 2019. "Climate change reduces the mitigation obtainable from sequestration in an Australian farming system," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(4), October.
    12. Acs, Szvetlana & Berentsen, Paul B.M. & Huirne, Ruud & van Asseldonk, Marcel, 2009. "Effect of yield and price risk on conversion from conventional to organic farming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 1-19.
    13. Jackson, T.M. & Hanjra, Munir A. & Khan, S. & Hafeez, M.M., 2011. "Building a climate resilient farm: A risk based approach for understanding water, energy and emissions in irrigated agriculture," Agricultural Systems, Elsevier, vol. 104(9), pages 729-745.
    14. Janssen, Sander & van Ittersum, Martin K., 2007. "Assessing farm innovations and responses to policies: A review of bio-economic farm models," Agricultural Systems, Elsevier, vol. 94(3), pages 622-636, June.
    15. Corsi, Alessandro & Novelli, Silvia & Pettenati, Giacomo, 2014. "Alternative Food Networks in Piedmont: determinants of on-farm and off-farm direct sales by farmers," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201439, University of Turin.
    16. Bakhshoodeh, Mohamad & Shajari, S., 2006. "Adoption of New Seed Varieties Under Production Risk: An Application to Rice in Iran," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25578, International Association of Agricultural Economists.
    17. Awondo, Sebastain Nde & Fonsah, Esendugue Greg & Riley, David G., 2012. "Are Tomato-Spotted Wilt Virus Management Tactics Good Enough?," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119790, Southern Agricultural Economics Association.
    18. Akhter Ali & Awudu Abdulai & Dil Bahadur Rahut, 2017. "Farmers' Access to Markets: The Case of Cotton in Pakistan," Asian Economic Journal, East Asian Economic Association, vol. 31(2), pages 211-232, June.
    19. Mohamed Ghali & Maha Ben Jaballah & Nejla Ben Arfa & Annie Sigwalt, 2022. "Analysis of factors that influence adoption of agroecological practices in viticulture," Review of Agricultural, Food and Environmental Studies, Springer, vol. 103(3), pages 179-209, September.
    20. Skevas, Theodoros & Swinton, Scott M. & Tanner, Sophia & Sanford, Gregg & Thelen, Kurt, 2015. "Investment risk in bioenergy crops," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205440, Agricultural and Applied Economics Association.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aare06:139793. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.