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PR - Evaluation Of Basic White Maize Pricing Strategies Vs Spot Market Pricing Strategies (p467-476)

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  • Strydom, D.B.
  • Grové, B.
  • Henning, J.
  • Willemse, B.J.

Abstract

The use of modern marketing strategies to minimize risk exposure is not a widely adopted practice amongst maize producers. The producers tend to use high risk strategies which include the selling of the crop on the cash market after harvest; whilst the high market risks require innovative strategies including the use of futures and options as traded on South African Futures Exchange (SAFEX). This is mostly due to a lack of interest and knowledge of the market. The purpose of the study is to examine whether the adoption of a basic routine strategy is better than adopting no strategy at all. The study illustrate that by using a Stochastic Efficiency with Respect to a Function (SERF) and Cumulative Distribution Function (CDF) that the use of five basic strategies namely a Put (plant time)-, Twelve-segment-, Three-segment-, Put (pollination) and Sell after pollination can be more rewarding. These strategies can be adopted by farmers without an in-depth understanding of the market and market-signals. The results obtained from the study illustrate that producers who tend to be more risk neutral would prefer using the Twelve-segment- or Spot-strategy whilst a risk averse producer would prefer the Three-segment, Feb-Put or Dec-Put strategy. It also indicates that no strategy can be labelled as the all-time best and that the choice between strategies depends on the risk aversion of the producer.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:ifma11:345598
    DOI: 10.22004/ag.econ.345598
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    References listed on IDEAS

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    1. Jordaan, Henry & Grove, Bennie & Jooste, Andre & Alemu, A.G., 2007. "Measuring the Price Volatility of Certain Field Crops in South Africa using the ARCH/GARCH Approach," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(3), pages 1-17, September.
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    3. 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.
    4. Mixon, Scott, 2009. "Option markets and implied volatility: Past versus present," Journal of Financial Economics, Elsevier, vol. 94(2), pages 171-191, November.
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    Marketing; Crop Production/Industries;

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