Farmer’s Income Shifting Option in Post-harvest Forward Contracting

Mindy Mallory (), Wenjiao Zhao and Scott Irwin

No 124692, 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington from Agricultural and Applied Economics Association

Abstract: We estimate the cost of post-harvest forward contracting corn and soybeans for January and March delivery from 1980 through 2009. For both corn and soybeans we saw a downward trend in the cost of forward contract for January delivery and we conclude that the cost of forward contracting for January delivery is partly compensation for the counterparty risk borne by the grain merchant. Our results for the March delivery forward contracts indicate that this cost is flat, and the cost of forward contracting soybeans for March delivery is slightly downward sloped, but less than the cost of forward contracting soybeans for January delivery. This indicates that cash flow risk may be more important than risk of default by the farmer counterparty in the forward contracts for March delivery. We did not find a significant increase in the cost of forward contracting for January delivery, when there is an income shifting benefit compared to the cost of forward contracting for March delivery when there is not an income shifting benefit. We conclude that the choice of forward contracts for January verses March delivery offer a relatively inexpensive means of smoothing income tax burden across years.

Keywords: Agricultural Finance; Demand and Price Analysis; Marketing (search for similar items in EconPapers)
Pages: 25
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea12:124692

DOI: 10.22004/ag.econ.124692

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