Risk and grain marketing behavior of large-scale farmers

Pre-harvest marketing techniques to reduce price and income risk are receiving greater attention in response to greater globalization of agricultural markets and reductions in government stabilization programs. Past research has found farmers' uses of these techniques are much lower than "optimal" hedging strategies. This article examines the relationship between farm characteristics and the use of forward pricing techniques by large-scale Midwestern corn and soybean producers. Data for the study were obtained from a survey of pre-harvest marketing behavior, farm characteristics, and risk attitudes of participants in the 1993 Top Farmer Crop Workshop at Purdue University. The maximum percentage that producers would consider marketing by August 1 was about 59 percent for both corn and soybeans. They reported that they had marketed about 24 and 39 percent of expected 1993 corn and soybean production, respectively, by July 15, 1993. The study used Tobit regression techniques to determine the factors that affected farmers' pre-harvest marketing behavior. Results were mixed. Only dummy variables for the use of options or minimum-price contracts and for the use of hedges had positive significant coefficients for all equations. Yield variability, percent of income from government payments, and a variable related to prospect theory were not significant in any of the equations. Age, education, gross income, location and futures price expectations were significantly related to the percent corn marketed in 1993. The maximum percent of corn marketed by August 1 was significantly related to percent of income from livestock and futures price expectations. Farm location significantly affected the percent soybeans marketed in 1993, while the maximum percent marketed was significantly related to the debt/asset ratio. A safety-first risk attitude toward the losses variable significantly affected the maximum percent marketed of both commodities.