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Why Do Farmers Forward Contract In Factor Markets?

Author

Listed:
  • Haydu, John J.
  • Myers, Robert J.
  • Thompson, Stanley R.

Abstract

This study investigated farmers' incentive to forward purchase inputs. A model of farmer decision making was used to derive an optimal forward contracting rule. Explicit in the model was the tradeoff between the quantity of input to be purchased in advance, and the remaining portion to be purchased later on the spot market. Results indicated that the primary reasons farmers contract inputs are to reduce risk and to speculate on favorable price moves. A numerical example of fertilizer used in corn production indicated that the size of the price discount was the dominant factor in forward contracting decisions.

Suggested Citation

  • Haydu, John J. & Myers, Robert J. & Thompson, Stanley R., 1992. "Why Do Farmers Forward Contract In Factor Markets?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 24(1), pages 145-151, July.
    • Handle: RePEc:cup:jagaec:v:24:y:1992:i:01:p:145-151_02
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    Cited by:

    1. Todd H. Kuethe & Mitch Morehart, 2012. "The profit impacts of risk management tool adoption," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 104-116, May.
    2. Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Ehmke, Mariah D. & Coatney, Kalyn T., 2013. "Subsidy Incidence in Factor Markets: An Experimental Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(1), pages 17-33, February.
    3. Timothy Park & Ashok K. Mishra & Shawn J. Wozniak, 2014. "Do farm operators benefit from direct to consumer marketing strategies?," Agricultural Economics, International Association of Agricultural Economists, vol. 45(2), pages 213-224, March.
    4. Perry, Janet E. & Mishra, Ashok K., 1999. "Forward Contracting Of Inputs: A Farm-Level Analysis," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2), pages 1-15.
    5. Daberkow, Stan G. & McBride, William D., 2004. "Corn Producers´ Response To The 2001 Nitrogen Fertilizer Price Increase," 2004 Annual meeting, August 1-4, Denver, CO 20271, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Mishra, Ashok K. & El-Osta, Hisham S. & Johnson, James D., 1999. "Factors Contributing to Earnings Success of Cash Grain Farms," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(3), pages 623-637, December.

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