Hostname: page-component-cd9895bd7-dk4vv Total loading time: 0 Render date: 2024-12-23T19:40:37.445Z Has data issue: false hasContentIssue false
  • English
  • Français

Forward Contracting Versus Hedging Under Price and Yield Uncertainty

Published online by Cambridge University Press:  05 September 2016

Stephen E. Miller
Stephen E. Miller*
Affiliation:
Department of Agricultural Economics and Rural Sociology, Clemson University
Get access Rights & Permissions [Opens in a new window]

Abstract

Although apparently preferred by farmers to direct hedging as a forward pricing mechanism, forward contracting has received little attention in the literature dealing with optimal forward pricing levels. An often-cited reason for producer preference for forward contracting is the absence of basis risks under that forward pricing alternative. This paper presents models of optimal forward contracting and hedging under price and yield uncertainty within a mean-variance framework. The results indicate that basis certainty does not explain preferences for forward contracting.

Keywords

forward contractinghedgingyield uncertaintyprice uncertainty
Type
Submitted Articles
Information
Journal of Agricultural and Applied Economics , Volume 18 , Issue 2 , December 1986 , pp. 139 - 146
Copyright
Copyright © Southern Agricultural Economics Association 1986

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, R. W. and Danthine, J. P.. “Hedger Diversity in Futures Markets.” The Econ. J., 93(1983):370–389.Google Scholar
Barry, P. J. and Willmann, D. R.. “A Risk-Programming Analysis of Forward Contracting with Credit Constraints.” Amer. J. Agr. Econ., 58,1(1976):62–70.Google Scholar
Bohrnstedt, G. W. and Goldberger, A. S.. “On the Exact Covariance of Products of Random Variables.” J. Amer. Stat. Assoc., 64(1969):1,439–1,442.Google Scholar
Commodity Futures Trading Commission. “1977 Report on Farmers' Use of Futures Markets and Forward Contracts.” Mimeographed paper, 1978.Google Scholar
Department of Agricultural Economics and Rural Sociology. Clemson University. “Marketing Highlights.” various issues.Google Scholar
Harris, H. M..and Miller, S. E.. “An Analysis of Cash Contracting Corn and Soybeans in South Carolina.” National Conference on Grain Marketing Patterns, Tennessee Valley Authority, Circular Z-173, 1981.Google Scholar
Harris, K. S..and Baker, C. B.. “Does Hedging Increase Credit for Illinois Crop Farmers.” No. Cent. J. Agr. Econ., 3(1981):47–52.Google Scholar
Heifner, R. G., Driscoll, J. L., Helmuth, J. W., Leath, M. N., Niernburger, F. F., and Wright, B. H.. “The U.S. Cash Grain Trade in 1974: Participants, Transactions, and Information Services.” USDA, ERS, Agricultural Economics Report No. 386, 1977.Google Scholar
Heifner, R. G..“Minimum Risk Pre-Harvest Sales of Soybeans.” Mimeographed paper, USDA, 1978.Google Scholar
Kahl, K. H..“Determination of the Recommended Hedging Ratio.” Amer. J. Agr. Econ., 65,3(1983):603–605.Google Scholar
Kenyon, D. E..“Farmers' Guide to Trading Agricultural Commodity Options.” USDA, ERS, Agricultural Information Bulletin No. 463, 1984.Google Scholar
Kroll, Y., Levy, H., and Markowitz, H. M.. “Mean-Variance Versus Direct Utility Maximization.” J. Finance, 39(1984):47–61.Google Scholar
McKinnon, R. I..“Futures Markets, Buffer Stocks, and Income Stability for Primary Producers.” J. Political Economy, 57(1967):844–861.Google Scholar
Nelson, R. D..“Forward and Futures Contracts as Preharvest Commodity Marketing Instruments.” Amer. J. Agr. Econ., 67,3(1985):15–23 Google Scholar
Rolfo, J. “Optimal Hedging Under Price and Quantity Uncertainty: The Case of a Cocoa Producer.” J Political Economy, 88(1980):100–116.Google Scholar
South Carolina Crop Reporting Service. “South Carolina Crop Statistics.” various issues.Google Scholar
The State. Columbia, South Carolina, various issues.Google Scholar
U. S. Department of Agriculture, Agricultural Marketing Service. “Cotton Market News.” various issues.Google Scholar
Wall Street Journal. New York, various issues.Google Scholar