Why do farmers have so little interest in futures markets?

A farm financial model with leverage and investment in two farm enterprises is specified. The model is extended to incorporate futures hedging and the Separation Theorem is used to show that optimal hedging is zero. The assumption of a risk-free asset is relaxed and, while this leads to a violation of the Separation Theorem, the result that optimal hedging is zero is maintained providing that futures markets are efficient. It is concluded that if capital markets are efficient then farmers will have little interest in futures markets except to speculate.© 2002 Elsevier Science B.V. All rights reserved.


Issue Date:
2002-05
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/177525
Published in:
Agricultural Economics: The Journal of the International Association of Agricultural Economists, Volume 27, Issue 1
Page range:
1-6
Total Pages:
6




 Record created 2017-04-01, last modified 2017-08-27

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