PR – Basic Routine Sourcing Strategies For Price Hedging Of White Maize In South Africa

Maize Milling firms use complex procurement strategies to procure their raw materials which include price hedging strategies. In this, study basic routine price hedging strategies were analysed as part of the procurement of white maize over a ten year period ranging from 2002-2012. Part of the pricing strategies used to procure white maize over the period of ten years were a call and collar strategy. These strategies were compared to the baseline futures (spot) market. The data was obtained from the Johannesburg Stock Exchange’s Agricultural Products Division better known as SAFEX. The data was analysed by using descriptive statistics and a Cumulative Distribution Function. However these routine price hedging strategies were used, by using the real (Not taking inflation into account) costs incurred were over the ten year,period is also revealed in the paper for implementation in each of the strategies. The results obtained from the study prove that by using basic routine price hedging strategies to procure white maize, it is more beneficial to do so then by procuring from the future (spot) market. Thus it can be concluded that it is not necessary to use a complex method of sourcing white maize through SAFEX, to be efficient, by implementing a basic routine price hedging strategy year on year it can be better than procuring from the futures (spot) market.

Keywords: basic routine procurement strategies, CDF

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Author(s): Strydom, D.B., Venter, M.M., Willemse, B.J.


Organizations(s): Department of Agricultural Economics, University of the Free State