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Factors Affecting Hedging Decisions Using Evidence from the Cotton Industry

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  • Isengildina, Olga
  • Hudson, Darren

Abstract

Few farmers utilize futures and options markets to price their crops despite significant educational efforts. This study seeks to analyze producer hedging behavior within the framework of the overall marketing behavior. Producer marketing behavior is modeled as a simultaneous choice between cash sales, cooperative marketing and forward contracts, and hedging. A multinomial logit model is used for empirical estimation using data from a survey administered to a sample of cotton producers from across the U.S. The most important factors that explain the use of forward pricing by cotton producers are producer preferences, farm size, use of crop insurance, risk aversion, income from government payments and off-farm income. Risk aversion, off-farm income, crop insurance and some producer perceptions are important in the choice of the form of forward pricing (direct hedging vs. cooperative marketing and forward contracts).

Suggested Citation

  • 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.
  • Handle: RePEc:ags:ncrone:18970
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    File URL: http://purl.umn.edu/18970
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    Cited by:

    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), March.
    2. Mofokeng, Maine & Vink, Nick, 2013. "Factors Affecting the Hedging Decision of Maize Farmers in Gauteng Province," 2013 AAAE Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 161465, African Association of Agricultural Economists (AAAE).
    3. Garcia, Philip & Nelson, Carl H., 2003. "Engaging Students In Research: The Use Of Structured Professional Dialogue," 2003 Annual meeting, July 27-30, Montreal, Canada 21894, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Enjolras, Geoffroy & Sentis, P., 2008. "The Main Determinants of Insurance Purchase: An Empirical Study on Crop Insurance Policies in France," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44395, European Association of Agricultural Economists.
    5. 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), December.

    More about this item

    Keywords

    Crop Production/Industries; Marketing;

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