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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
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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

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