FORWARD CONTRACTING IN THE CORN BELT AND SPRING WHEAT AREAS, 1988: RESULTS OF AN ELEVATOR SURVEY

Bruce H. Wright, Joy L. Harwood, Linwood Hoffman and Richard G. Heifner

No 278141, Staff Reports from United States Department of Agriculture, Economic Research Service

Abstract: Although drought-induced forward contracting problems have affected many elevators in 1988, few elevators face serious losses. Elevators surveyed in 13 Corn Belt and spring wheat States in September expected that farmers would default on less than 1 percent of their contracts. Only about 1 percent of these elevators expected that losses from farmers failing to meet contract commitments would exceed 10 percent of the elevator's net worth. Over half of the elevators in these 13 States entered forward contracts with farmers for corn, soybeans, or wheat produced in 1988. These contracts covered approximately 15 percent of the corn, 22 percent of the soybeans, and 7 percent of the spring wheat purchased by these elevators during the year. Because farmers seldom contract for more than half of their expected production, contracting problems have occurred mainly where yield shortfalls are most extreme. Elevators have renegotiated or expect to renegotiate less than 2 percent of their contracts. Of those contracts that are renegotiated, approximately 90 percent are expected to be settled by the farmer paying the elevator the full difference between the current price and the contracted price, plus a service charge.

Keywords: Crop Production/Industries; Productivity Analysis (search for similar items in EconPapers)
Pages: 29
Date: 1988-12
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uerssr:278141

DOI: 10.22004/ag.econ.278141

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