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Factors affecting the price volatility of July futures contracts for white maize in South Africa

Author

Listed:
  • Monk, M.J.
  • Jordaan, Henry
  • Grové, B.

Abstract

Price volatility in agriculture is important because of the part it plays in the overall variability in profits. South African farmers have to contend with low profit margins, and price volatility therefore affects agricultural producers in South Africa to a considerable degree. The autoregressive conditional heteroscedasticity/generalised autoregressive conditional heteroscedasticity (ARCH/GARCH) approach is used to quantify the volatility in the price of the July white maize futures contracts that trade on the South African Futures Exchange (SAFEX). Volatility tends to increase from December through the early part of May, which makes the timing of marketing decisions important. As a second sub-objective, linear regression is used to identify the factors that cause changes in volatility over time. The release of new information on local and international growing conditions is found to increase the level of volatility in the price of the July white maize contract. Maize producers should therefore take the release of important information into account when developing their marketing plans for the coming marketing season. The usefulness of put options as a price risk management tool is highlighted by the results of this research.

Suggested Citation

  • Monk, M.J. & Jordaan, Henry & Grové, B., 2010. "Factors affecting the price volatility of July futures contracts for white maize in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 49(4), December.
    • Handle: RePEc:ags:agreko:347514
    DOI: 10.22004/ag.econ.347514
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    Cited by:

    1. Middelberg, S.L. & Buys, P.W. & Styger, P., 2013. "The accountancy implications of commodity derivatives: A South African agricultural sector case study," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 51(3), February.
    2. Zeeshan Mustafa & Giuliano Vitali & Ray Huffaker & Maurizio Canavari, 2024. "A systematic review on price volatility in agriculture," Journal of Economic Surveys, Wiley Blackwell, vol. 38(1), pages 268-294, February.

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