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Do Australian woolgrowers manage price risk rationally?

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  • Deane, Paul
  • Malcolm, Bill

Abstract

Australian woolgrowers have not adopted price risk management in the last decade. This is despite a concerted effort at various times by participants in the wool industry to encourage growers to use hedging/forward selling. The explanation for the reluctance of woolgrowers to use futures market and forward pricing instruments lies not in market failure but in characteristics of wool producing farm businesses. In particular, the degree of business and financial risk and the interaction between the two helps to explain why woolgrowers do not use futures. In the context of the whole farm system, Australian woolgrowers are behaving as rational managers of wool price risk.

Suggested Citation

  • Deane, Paul & Malcolm, Bill, 2006. "Do Australian woolgrowers manage price risk rationally?," AFBM Journal, Australasian Farm Business Management Network, vol. 3(2).
  • Handle: RePEc:ags:afbmau:122518
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    File URL: http://purl.umn.edu/122518
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    References listed on IDEAS

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    1. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. B. Wade Brorsen, 1995. "Optimal Hedge Ratios with Risk-Neutral Producers and Nonlinear Borrowing Costs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 174-181.
    4. Kingwell, Ross, 2000. "Price Risk Management for Australian Broad acre Farmers: some observations," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 8.
    5. Simmons, Phil, 2002. "Why do farmers have so little interest in futures markets?," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(1), May.
    6. Oscar Vergara & Keith H. Coble & Thomas O. Knight & George F. Patrick & Alan E. Baquet, 2004. "Cotton producers' choice of marketing techniques," Agribusiness, John Wiley & Sons, Ltd., vol. 20(4), pages 465-479.
    7. Stephen C. Gabriel & C. B. Baker, 1980. "Concepts of Business and Financial Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 560-564.
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    Cited by:

    1. 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.

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