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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
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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

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