Stochastic efficiency analysis of alternative basic grain marketing strategies
By: M.M. Venter(1), D.B. Strydom(2) and B. Grové(3)
Submitted as a contributed paper at the A.A.A.E and A.E.A.S.A conference
he use of modern routine marketing strategies to minimize risk exposure is not a widely adopted practice amongst grain producers. The producers tend to use high risk strategies which include the selling of the crop on the cash market after harvest; whilst 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 five basic strategies for each crop type namely a Put (plant time)-, Twelve-segment-, Three-segment-, Put (pollination) (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 using hedging strategies are better than no strategy at all.
Keywords: Marketing strategies, futures, options, SERF.
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(1) Graduate Student, Department of Agricultural Economics, University of the Free State, South Africa
(2) Lecturer, Department of Agricultural Economics, University of the Free State, South Africa
(3) Lecturer, Department of Agricultural Economics, University of the Free State, South Africa