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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

Abstract

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 capacity”, “Distrust of the market”, and “Bad experiences”. 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.

Suggested Citation

  • 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), pages 1-18, December.
    • Handle: RePEc:ags:agreko:7049
    DOI: 10.22004/ag.econ.7049
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    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), pages 1-14, March.
    2. Aymeric Ricome & Arnaud Reynaud, 2022. "Marketing contract choices in agriculture: The role of price expectation and price risk management," Agricultural Economics, International Association of Agricultural Economists, vol. 53(1), pages 170-186, January.
    3. Mofokeng, Maine & Vink, Nick, 2013. "Factors Affecting the Hedging Decision of Maize Farmers in Gauteng Province," 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 161465, African Association of Agricultural Economists (AAAE).
    4. Jordaan, H. & Grové, B., 2007. "PR - Investigating Factors Affecting The Forward Pricing Behaviour Of Vaalharts Maize Producers: A Two-step Econometric Approach," 16th Congress, Cork, Ireland, July 15-20, 2007 345387, International Farm Management Association.
    5. Strydom, D.B. & Grové, B. & Henning, J. & Willemse, B.J., 2011. "PR - Evaluation Of Basic White Maize Pricing Strategies Vs Spot Market Pricing Strategies (p467-476)," 18th Congress, Methven, New Zealand, 2011 345598, International Farm Management Association.
    6. 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).
    7. Carrer, Marcelo José & Silveira, Rodrigo Lanna F. & Meirelles De Souza Filho, Hildo, 2017. "Citrus Producers' Choice of Price Risk Management Tools," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258352, Agricultural and Applied Economics Association.
    8. Venter, M.M. & Strydom, D.B. & Willemse, B.J., 2013. "PR - Basic Routine Sourcing Strategies For Price Hedging Of White Maize In South Africa," 19th Congress, Warsaw, Poland, 2013 345702, International Farm Management Association.
    9. Jamal Shah & Majed Alharthi, 2022. "The Association between Farmers’ Psychological Factors and Their Choice to Adopt Risk Management Strategies: The Case of Pakistan," Agriculture, MDPI, vol. 12(3), pages 1-24, March.
    10. Roussy, Caroline & Rider, Aude & Chaib, Karim & Boyet, Marie, 2017. "Marketing Contracts and Risk Management for Cereal Producers," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261106, European Association of Agricultural Economists.

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