Proceedings

PR – Evaluation Of Basic White Maize Pricing Strategies Vs Spot Market Pricing Strategies (p467-476)

The use of modern marketing strategies to minimize risk exposure is not a widely adopted practice amongst maize 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 a basic routine strategy is better than adopting no strategy at all. The study illustrate that by using a Stochastic Efficiency with Respect to a Function (SERF) and Cumulative Distribution Function (CDF) that the use of five basic strategies namely a Put (plant time)-, Twelve-segment-, Three-segment-, Put (pollination) 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 producers who tend to be more risk neutral would prefer using the Twelve-segment- or Spot-strategy whilst a risk averse producer would prefer the Three-segment, Feb-Put or Dec-Put strategy. It also indicates that no strategy can be labelled as the all-time best and that the choice between strategies depends on the risk aversion of the producer.

Keywords: Marketing strategies, futures, options, SERF

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Author(s): Grové, B., Henning, J., Strydom, D.B., Willemse, B.J.

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Organizations(s): University of the Free State