Farmer’s Income Shifting Option in Post-harvest Forward Contracting
We estimate the cost of post-harvest forward contracting corn and soybeans for January and March delivery from 1980 through 2009. For both corn and soybeans we saw a downward trend in the cost of forward contract for January delivery and we conclude that the cost of forward contracting for January delivery is partly compensation for the counterparty risk borne by the grain merchant. Our results for the March delivery forward contracts indicate that this cost is flat, and the cost of forward contracting soybeans for March delivery is slightly downward sloped, but less than the cost of forward contracting soybeans for January delivery. This indicates that cash flow risk may be more important than risk of default by the farmer counterparty in the forward contracts for March delivery. We did not find a significant increase in the cost of forward contracting for January delivery, when there is an income shifting benefit compared to the cost of forward contracting for March delivery when there is not an income shifting benefit. We conclude that the choice of forward contracts for January verses March delivery offer a relatively inexpensive means of smoothing income tax burden across years.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shi, Wei & Irwin, Scott H. & Good, Darrel L. & Dietz, Sarah N., 2005. "Wheat Forward Contract Pricing: Evidence on Forecast Power and Risk Premia," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19043, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- B. Wade Brorsen & John Coombs & Kim Anderson, 1995. "The cost of forward contracting wheat," Agribusiness, John Wiley & Sons, Ltd., vol. 11(4), pages 349-354.
- Tronstad, Russell, 1991. "The Effects Of Firm Size And Production Cost Levels On Dynamically Optimal After-Tax Cotton Storage And Hedging Decisions," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 23(01), July.
- Townsend, John P. & Brorsen, B. Wade, 2000.
"Cost Of Forward Contracting Hard Red Winter Wheat,"
Journal of Agricultural and Applied Economics,
Southern Agricultural Economics Association, vol. 32(01), April.
- Townsend, John P. & Brorsen, B. Wade, 1997. "Cost of Forward Contracting Hard Red Winter Wheat," 1997 Annual Meeting, July 13-16, 1997, Reno\Sparks, Nevada 35749, Western Agricultural Economics Association.
- Kevin McNew & Bruce Gardner, 1999. "Income Taxes and Price Variability in Storable Commodity Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 544-552.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea12:124692. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.