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Factors Affecting Hedging Decisions Using Evidence from the Cotton Industry

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Author Info

  • Isengildina, Olga
  • Hudson, Darren

Abstract

Few farmers utilize futures and options markets to price their crops despite significant educational efforts. This study seeks to analyze producer hedging behavior within the framework of the overall marketing behavior. Producer marketing behavior is modeled as a simultaneous choice between cash sales, cooperative marketing and forward contracts, and hedging. A multinomial logit model is used for empirical estimation using data from a survey administered to a sample of cotton producers from across the U.S. The most important factors that explain the use of forward pricing by cotton producers are producer preferences, farm size, use of crop insurance, risk aversion, income from government payments and off-farm income. Risk aversion, off-farm income, crop insurance and some producer perceptions are important in the choice of the form of forward pricing (direct hedging vs. cooperative marketing and forward contracts).

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File URL: http://purl.umn.edu/18970
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Bibliographic Info

Paper provided by NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2001 Conference, April 23-24, 2001, St. Louis, Missouri with number 18970.

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Date of creation: 2001
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Handle: RePEc:ags:ncrone:18970

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Web page: http://www.agebb.missouri.edu/ncrext/ncr134/

Related research

Keywords: Crop Production/Industries; Marketing;

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Cited by:
  1. Geoffroy Enjolras & Patrick Sentis, 2008. "The main determinants of insurance purchase. An empirical study on crop insurance policies in France," Working Papers 08-06, LAMETA, Universtiy of Montpellier, revised Apr 2008.
  2. Garcia, Philip & Nelson, Carl H., 2003. "Engaging Students In Research: The Use Of Structured Professional Dialogue," 2003 Annual meeting, July 27-30, Montreal, Canada 21894, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Jordaan, Henry & Grove, Bennie, 2007. "Factors Affecting Maize Producers Adoption of Forward Pricing in Price Risk Management: The Case of Vaalharts," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(4), December.
  4. 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.

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