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Factors Affecting Maize Producers Adoption of Forward Pricing in Price Risk Management: The Case of Vaalharts

Listed author(s):
  • Jordaan, Henry
  • Grove, Bennie
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    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.

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    Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

    Volume (Year): 46 (2007)
    Issue (Month): 4 (December)

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    Handle: RePEc:ags:agreko:7049
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    1. Isengildina, Olga & Hudson, Darren, 2001. "Factors Affecting Hedging Decisions Using Evidence from the Cotton Industry," 2001 Conference, April 23-24, 2001, St. Louis, Missouri 18970, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Davis, Todd D. & Patrick, George F. & Coble, Keith H. & Knight, Thomas O. & Baquet, Alan E., 2005. "Forward Pricing Behavior of Corn and Soybean Producers," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 37(01), pages 145-160, April.
    3. McNew, Kevin & Musser, Wesley N., 2000. "Evidence Of Farmer Forward Pricing Behavior," Working Papers 28568, University of Maryland, Department of Agricultural and Resource Economics.
    4. Sartwelle, James D., III & O'Brien, Daniel M. & Tierney, William I., Jr. & Eggers, Tim, 2000. "The Effect Of Personal And Farm Characteristics Upon Grain Marketing Practices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
    5. Ani L. Katchova & Mario J. Miranda, 2004. "Two-Step Econometric Estimation of Farm Characteristics Affecting Marketing Contract Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 88-102.
    6. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics.
    7. Bown, A.N. & Ortmann, G.F. & Darroch, M.A.G., 1999. "Use Of Maize Marketing Alternatives And Price Risk Management Tools By Commercial Maize Farmers In South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 38(3), September.
    8. Sartwelle, James & O'Brien, Daniel & Tierney, William & Eggers, Tim, 2000. "The Effect of Personal and Farm Characteristics upon Grain Marketing Practices," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(01), pages 95-111, April.
    9. B.I. Shapiro & B. Wade Brorsen, 1988. "Factors Affecting Farmers' Hedging Decisions," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 10(2), pages 145-153.
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