IDEAS home Printed from https://ideas.repec.org/a/cup/jagaec/v24y1992i01p145-151_02.html
   My bibliography  Save this article

Why Do Farmers Forward Contract In Factor Markets?

Author

Listed:
  • Haydu, John J.
  • Myers, Robert J.
  • Thompson, Stanley R.

Abstract

This study investigated farmers' incentive to forward purchase inputs. A model of farmer decision making was used to derive an optimal forward contracting rule. Explicit in the model was the tradeoff between the quantity of input to be purchased in advance, and the remaining portion to be purchased later on the spot market. Results indicated that the primary reasons farmers contract inputs are to reduce risk and to speculate on favorable price moves. A numerical example of fertilizer used in corn production indicated that the size of the price discount was the dominant factor in forward contracting decisions.

Suggested Citation

  • Haydu, John J. & Myers, Robert J. & Thompson, Stanley R., 1992. "Why Do Farmers Forward Contract In Factor Markets?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 24(1), pages 145-151, July.
    • Handle: RePEc:cup:jagaec:v:24:y:1992:i:01:p:145-151_02
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0081305200026066/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75(6), pages 844-844.
    2. Robert J. Myers & Stanley R. Thompson, 1989. "Generalized Optimal Hedge Ratio Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(4), pages 858-868.
    3. Chavas, Jean-Paul & Pope, Rulon D., 1982. "Hedging And Production Decisions Under A Linear Mean-Variance Preference Function," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(1), pages 1-12, July.
    4. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    5. Holthausen, Duncan M, 1976. "Input Choices and Uncertain Demand," American Economic Review, American Economic Association, vol. 66(1), pages 94-103, March.
    6. Mark Rubinstein, 1976. "The Valuation of Uncertain Income Streams and the Pricing of Options," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 407-425, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Todd H. Kuethe & Mitch Morehart, 2012. "The profit impacts of risk management tool adoption," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 104-116, May.
    2. Nagler, Amy M. & Menkhaus, Dale J. & Bastian, Christopher T. & Ehmke, Mariah D. & Coatney, Kalyn T., 2013. "Subsidy Incidence in Factor Markets: An Experimental Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(1), pages 17-33, February.
    3. Daberkow, Stan G. & McBride, William D., 2004. "Corn Producers´ Response To The 2001 Nitrogen Fertilizer Price Increase," 2004 Annual meeting, August 1-4, Denver, CO 20271, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Mishra, Ashok K. & El-Osta, Hisham S. & Johnson, James D., 1999. "Factors Contributing to Earnings Success of Cash Grain Farms," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(3), pages 623-637, December.
    5. Timothy Park & Ashok K. Mishra & Shawn J. Wozniak, 2014. "Do farm operators benefit from direct to consumer marketing strategies?," Agricultural Economics, International Association of Agricultural Economists, vol. 45(2), pages 213-224, March.
    6. Perry, Janet E. & Mishra, Ashok K., 1999. "Forward Contracting Of Inputs: A Farm-Level Analysis," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2), pages 1-15.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kim, Jae-Gyeong, 1993. "Futures markets in an open economy," ISU General Staff Papers 1993010108000011461, Iowa State University, Department of Economics.
    2. Perry, Janet E. & Mishra, Ashok K., 1999. "Forward Contracting Of Inputs: A Farm-Level Analysis," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2), pages 1-15.
    3. Ait-Sahalia, Yacine & Lo, Andrew W., 2000. "Nonparametric risk management and implied risk aversion," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 9-51.
    4. Sergio H. Lence & Dermot J. Hayes, 1995. "Optimal Hedging Under Forward‐Looking Behaviour," The Economic Record, The Economic Society of Australia, vol. 71(4), pages 329-342, December.
    5. Moawia Alghalith & Ricardo Lalloob, 2012. "A General Empirical Model of Hedging," JRFM, MDPI, vol. 5(1), pages 1-19, December.
    6. Guy Meunier, 2014. "Risk Aversion and Technology Portfolios," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 347-365, June.
    7. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics.
    8. Monson, Steven J., 1991. "Accounting for yield risk in preharvest commodity pricing decisions," ISU General Staff Papers 1991010108000018169, Iowa State University, Department of Economics.
    9. Antonovitz, Frances & Nelson, Ray D., 1987. "Forward And Futures Markets And The Competitive Firm Under Price Uncertainty," Regional Research Projects > 1987: S-180 Annual Meeting, March 22-25, 1987, San Antonio, Texas 272341, Regional Research Projects > S-180: An Economic Analysis of Risk Management Strategies for Agricultural Production Firms.
    10. Ardian Harri & John Michael Riley & John D. Anderson & Keith H. Coble, 2009. "Managing economic risk in value‐based marketing of fed cattle," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 295-306, May.
    11. Carolyn W. Chang, 1995. "A No-Arbitrage Martingale Analysis For Jump-Diffusion Valuation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(3), pages 351-381, September.
    12. Roelof Salomons, 2008. "A Theoretical And Practical Perspective On The Equity Risk Premium," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 299-329, April.
    13. Hardouvelis, Gikas A. & Kim, Dongcheol & Wizman, Thierry A., 1996. "Asset pricing models with and without consumption data: An empirical evaluation," Journal of Empirical Finance, Elsevier, vol. 3(3), pages 267-301, September.
    14. Alexander, Vickie J. & Musser, Wesley N. & Mason, George, 1986. "Futures Markets And Firm Decisions Under Price, Production, And Financial Uncertainty," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 18(2), pages 1-11, December.
    15. George M. Constantinides, 2002. "Rational Asset Prices," Journal of Finance, American Finance Association, vol. 57(4), pages 1567-1591, August.
    16. Liao, Wen Ju & Sung, Hao-Chang, 2020. "Implied risk aversion and pricing kernel in the FTSE 100 index," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    17. Coble, Keith H. & Zuniga, Manuel & Heifner, Richard, 2003. "Evaluation of the interaction of risk management tools for cotton and soybeans," Agricultural Systems, Elsevier, vol. 75(2-3), pages 323-340.
    18. Zakamouline, Valeri & Koekebakker, Steen, 2009. "Portfolio performance evaluation with generalized Sharpe ratios: Beyond the mean and variance," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1242-1254, July.
    19. George M. Constantinides, 2006. "Market Organization And The Prices Of Financial Assets," Manchester School, University of Manchester, vol. 74(s1), pages 1-23, September.
    20. Smith, David C., 1999. "Finite sample properties of tests of the Epstein-Zin asset pricing model," Journal of Econometrics, Elsevier, vol. 93(1), pages 113-148, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jagaec:v:24:y:1992:i:01:p:145-151_02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/aae .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.