Stochastic efficiency analysis of alternative basic grain marketing strategies

M.M. Venter, D.B. Strydom and B. Grové

Agrekon, 2013, vol. 52, issue sup1, 46-63

Abstract: The use of modern routine marketing strategies to minimize risk exposure is not a widely adopted practice among grain producers. The producers tend to use high risk strategies which include the selling of the crop on the cash market after harvest; while the high market risks require innovative strategies including the use of futures and options as traded on South African Futures Exchange (SAFEX). This is mostly due to a lack of interest and knowledge of the market. The purpose of the study is to examine whether the adoption of basic routine strategies is better than adopting no strategy at all. The study illustrates that by using a Stochastic Efficiency with Respect to a Function (SERF) and Cumulative Distribution Function (CDF) that the use of three basic strategies for each crop type, namely, a Put (plant time)-, (Three-segment-), (Critical Moment in production/marketing process) and Sell after pollination can be more rewarding. These strategies can be adopted by farmers without an in-depth understanding of the market and market signals. The results obtained from the study illustrate that each strategy is different for each crop. It also indicates that no strategy is worse than a specific strategy and that the choice between strategies depends on the risk aversion level of the producer. It is imperative to note that the use of hedging strategies is better than no strategy at all.

Date: 2013
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DOI: 10.1080/03031853.2013.770952

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