Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-28T09:27:14.019Z Has data issue: false hasContentIssue false
  • English
  • Français

Futures Markets and Firm Decisions Under Price, Production, and Financial Uncertainty

Published online by Cambridge University Press:  05 September 2016

Vickie J. Alexander ,
Wesley N. Musser  and
George Mason
Vickie J. Alexander
Affiliation:
Department of Agricultural Economics, University of Georgia
Wesley N. Musser
Affiliation:
Department of Agricultural Economics, Oregon State University Department of Agricultural Economics, University of Georgia
George Mason
Affiliation:
Department of Agricultural Economics, University of Georgia
Get access Rights & Permissions [Opens in a new window]

Abstract

Incorporation of futures markets into the theory of the firm under uncertainty has received considerable attention in risk management. A theoretical model of optimal firm decisions in cash and futures markets considering price, production, and financial risks is presented. Production and marketing strategies for corn and soybeans in Georgia and Illinois are analyzed to determine the optimal amount of futures contracting which may be a hedge or a speculative position. A partial hedge is optimal for most situations for risk averse producers when the amount hedged is variable. With fixed quantity transactions, speculative and cash positions, but not hedging, tend to be E-V efficient.

Keywords

financial riskoptimal futures contractE-V analysisspeculation
Type
Submitted Articles
Information
Journal of Agricultural and Applied Economics , Volume 18 , Issue 2 , December 1986 , pp. 39 - 50
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, J. R., Dillon, J. L., and Hardaker, J. B.. Agricultural Decision Analysis. Ames, Iowa: The Iowa State University Press, 1977.Google Scholar
Batra, R. N..and Ullah, A.. “Competitive Firm and the Theory of Input Demand Under Price Uncertainty.” J. Pol. Econ., 82(1974):537–548.Google Scholar
Berck, P. “Portfolio Theory and the Demand for Futures: The Case of California Cotton.” Amer. J. Agr. Econ., 63,3(1981):467–474.CrossRefGoogle Scholar
Board of Governors of the Federal Reserve. Federal Reserve Bulletin. Washington, D.C., 1973–1981.Google Scholar
Chavas, J. P..and Pope, R. D.. “Hedging and Production Decisions Under a Linear Mean-Variance Preference Function.” West. J. Agr. Econ., 7(1982):99–110.Google Scholar
Chicago Board of Trade. Unpublished data. Chicago, Illinois. 1973–1981.Google Scholar
Feder, G., Just, R. E., and Schmitz, A.. “Futures Markets and the Theory of the Firm Under Price Uncertainty.” Quarterly J. Econ., 44(1980):317–328.Google Scholar
Harris, K. S..and Baker, C. R.. “Does Hedging Increase Credit for Illinois Crop Farmers?” No. Cent. J. Agr. Econ., 3(1981):47–52.Google Scholar
Heifner, R.G. “Implications of Hedging for the Agricultural Lender.” Agr. Fin. Review, 33(1972):8–12.Google Scholar
Hieronymus, T. A.. Economics of Futures Trading. New York: Commodity Research Bureau, Inc., 1977.Google Scholar
Kahl, Kandice H. “Determination of the Recommended Hedging Ratio.” Amer. J. Agr. Econ., 65,3(1983):603–605.Google Scholar
Kenyon, D. E..“Hedging Strategies for Farmers: Current Knowledge and Research Needs.” Selected Paper Presented at the Southern Agricultural Economics Association Meetings, Nashville, Tennessee, February 5-8, 1984.Google Scholar
Leland, H. “Theory of the Firm Facing Random Demand.” Amer. J. Agr. Econ., 62,3(1972): 278–291.Google Scholar
Lutgen, L. H..and Helmers, G. A.. “Simulation of Production-Marketing Alternatives for Grain Farms Under Uncertainty.” No. Cent. J. Agr. Econ., 1(1979):23–30.Google Scholar
McKinnon, R. I..“Futures Markets, Buffer Stocks, and Income Instability for Primary Producers.” J. Polit. Econ., 75(1967):811–861.Google Scholar
Musser, Wesley N., Mapp, H. P. Jr., and Barry, P. J.. “Application I: Risk Programming”. Risk Management in Agriculture, Barry, P. J., editor. Ames, Iowa: The Iowa State University Press, 1984; pp. 129–147.Google Scholar
Paul, A. B., Heifner, R. G., and Helmuth, J. W.. Farmer's Use of Forward Contracts and Futures Markets, Agricultural Economic Report No. 320, Economic Research Service, U.S. Department of Agriculture; March, 1976.Google Scholar
Peck, A. E..“Hedging and Income Stability: Concepts, Implications, and an Example.” Amer. J. Agr. Econ., 57,3(1975):410–419.Google Scholar
Rolfo, J. “Optimal Hedging Under Price and Quantity Uncertainty: The Case of a Cocoa Producer.” J Polit. Econ., 88(1980):100–116.CrossRefGoogle Scholar
Sandmo, A. “Competitive Firm Under Price Uncertainty.” Amer. Econ. Rev., 61(1971):65–73 Google Scholar
U. S. Department of Agriculture, Statistical Reporting Service. Agricultural Prices, Annual Summary. Washington, D.C., 1973–1981.Google Scholar
U. S. Department of Agriculture. Crop Production, Annual Summary. Washington, D.C., 1973–1981.Google Scholar
Ward, R. W..and Fletcher, L. B.. “From Hedging to Speculation: A Micro Model of Optimal Futures and Cash Market Positions.” Amer. J. Agr. Econ., 53,1(1971):71–78.Google Scholar