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A Farm‐Level Financial Analysis of Farmers' Use of Futures and Options under Alternative Farm Programs
Author(s) -
Turvey Calum G.,
Baker Timothy G.
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242626
Subject(s) - futures contract , hedge , loan , debt , futures market , business , agribusiness , farm programs , capital (architecture) , agricultural science , economics , finance , agricultural economics , agriculture , history , ecology , environmental science , archaeology , payment , biology
In this paper, we investigate the relationships of farm programs and farm finance on farmers' decisions to hedge with futures or options. Results from a two‐period discrete sequential stochastic programming model of the farm firm indicates two important points. First, farmers' use of futures and options decreases in the presence of loan rates and target prices, and second, farms with high debt hedge more than farms with low debt. The results imply that evaluating farmers' use of futures and options based solely on market risks may exclude important information, namely participation in farm programs and the farm's capital structure.