PRODUCTION COSTS AND MARKET PRICE OF WHEAT BEHAVIOR ANALYSIS AS A SUPPORT FOR HEDGING STRATEGIES
DOI:
https://doi.org/10.5937/ekoPolj2002495JKeywords:
wheats total and operating production costs, wheat market price forecast, hedging strategiesAbstract
Information on the linkage between total and operating production cost and market price of wheat allows the farmer to forecast the direction of the market price and to make the proper decision towards reducing the immanent business risks on the farm - whether to sell wheat before harvest, immediately after harvest or to store and sell later. The paper is in line with the hypothesis that market price for storable agricultural products has empirically confirmed bottom limit. If the market price reaches the level of operating costs, farmers will stop the sales and store their product in anticipation of a higher price in the near future. This behavior is based on the premise that a supply shortage will stop further decline in wheat price. The analyzed ratios of market price to total costs and market price to operating costs allow the direct comparison of production profitability at different time periods without the need to eliminate inflation effects. The results of the analysis indicate a very strong correlation between operating cost and market price of wheat, compared to positive and to certain extent less significant correlation between total cost of production and market price. The first indicator, characterized by lower variability, thus, allows distinct forecast of the future wheat price behavior and timely decision on the appropriate price risk hedging strategy.
Downloads
Download data is not yet available.
References
1. DGARD (2016). Farm Economy Overview: Cereal Sector. EU Agricultural and Farm Economics Briefs, no. 11, July 2016, European Commission (EC), Directorate General for Agriculture and Rural Development (DGARD), Brussels, Belgium, 1-5.
2. Enghiad, A., Ufer, D., Countryman, A., & Thilmany, D. (2017). An Overview of Global Wheat Market Fundamentals in an Era of Climate Concerns. International Journal of Agronomy, 19, Article ID 3931897, 1-15, https://doi.org/10.1155/2017/3931897
3. FAO (2018a). Top 10 Country Production of Wheat. Database of FAO, Rome, Italy. Retrieved from: www.fao.org/faostat/en/#rankings/countries_by_commodity (March, 2018)
4. FAO (2018b). Top 10 Country, Export Value of Wheat. Database of FAO, Rome, Italy. Retrieved from: www.fao.org/faostat/en/#rankings/countries_by_commodity_exports (March, 2018)
5. Grewal, S., & Goel, S. (2015). Current Research Status and Future Challenges to Wheat Production in India. Indian Journal of Biotechnology, 14, 445-454.
6. Hallam, A., Eidman, V. R., Morehart, M., & Klonsky, K. (1998). Commodity Costs and Returns Estimation Handbook: A Report of the AAEA Task Force on Commodity Costs and Returns. Iowa State University, Department of Economics, Ames, USA.
7. Hassouneh, I., Serra, T., Bojnec, S., & Gil, J. M. (2017). Modelling Price Transmission and Volatility Spillover in the Slovenian Wheat Market. Applied Economics, 49(41):4116-4126.
8. Houck, J. P., & Ryan, M. E. (1972). Supply Analysis for Corn in the United States: The Impact of Changing Government Programs. American Journal of Agricultural Economics, 54(2):184-191.
9. Hubbard, G., Garnett, A., Lewis, P., & OBrien, A. (2013). Essentials of Economics. 2nd edition, Pearson Australia, Frenchs Forest, Australia.
10. Imexco (2017). Wheat exports by country. Portal of the Import-export & global supply chain (Imexco Int. Ltd.), Retrieved from: https://imexco-int.com/2017/12/25/wheat-exports-by-country/ (15th January, 2018).
11. Jeločnik, М., Zubović, Ј., & Zdravković, А. (2017). Procena šteta u proizvodnji pšenice izazvanih klimatskim faktorom. Ecologica, 87, 501-506.
12. Keeney, R. (2013). The End of the Direct Payment Era in U.S. Farm Policy. Expert paper no. EC-774-W, APEX - Ag. Policy Explained, Purdue Extension, 1-3. Retrieved from: www.extension.purdue.edu/extmedia/ec/ec-774-w.pdf
13. Kefyalew, A., & Henneberry, D. (1997). Wheat and Value-Added Wheat Export Market Segmentation. Journal of International Food & Agribusiness Marketing, 8(4):1-35, https://doi.org/10.1300/J047v08n04_01
14. Kiss, I. (2011). Significance of Wheat Production in World Economy and Position of Hungary in it. Applied Studies in Agribusiness and Commerce - APSTRACT, 5(1-2):115-119.
15. Kovačević, V., Jeločnik, M., Subić, J., Zekić, V., Milić, D., & Zubović, J. (2017). Causality Between Corn Production Cost and Cash Corn Price. Custos e @gronegócio, 13(4):2-16.
16. Lee, D. R., & Helmberger, P. G. (1985). Estimating Supply Response in the Presence of Farm Programs. American Journal of Agricultural Economics, 67(2):193-203.
17. Mekbib, G. H., Kalkuhl, M., & Braun, J. (2016). Worldwide Acreage and Yield Response to International Price Change and Volatility: A Dynamic Panel Data Analysis for Wheat, Rice, Corn, and Soybeans. American Journal of Agricultural Economics, 98(1):172-190.
18. Nerlove (1956). Estimates of the Elasticities of Supply of Selected Agricultural Commodities. Journal of Farm Economics, 38(2):496-509.
19. OECD (2008). Rising Food Prices: Causes and Consequences. OECD, Paris, France, Retrieved from: www.oecd.org/trade/agricultural-trade/40847088.pdf
20. Pejovich, S. (1990). The Economics of Property Rights: Towards a Theory of Comparative Systems. Kluwer Academic Publishers, Dordrecht, the Netherlands.
21. Rusnakova, M. (2015). Commodity Price Risk Management Using Option Strategies. Agricultural Economics, 61(4):149-157.
22. Shi, J., Zhao, Y., & Kiwanuka, R. (2014). Managing Inventories for Agricultural Products: The Optimal Selling Policies. Operations Research (under review), manuscript OPRE-2014-03-142, pp. 1-51, Retrieved from: https://web.njit.edu/~jshi/Shi-Zhao-Kiwanuka-OR.pdf (Jun, 2018)
23. Subić, J., Ivanović, L., & Jeločnik, M. (2010). The Impact of Subsidies on Variable Costs Covering in Field Cultures Production. Proceedings of XXIV Conference of Agronomists, Veterinarians and Technologists, 16(1-2):251-264.
24. Tomas Simin, M., Glavaš Trbić, D., Petrović, M., & Komaromi, B. (2019). Prices of Organic Products in the Republic of Serbia. Western Balkan Journal of Agricultural Economics and Rural Development, 1(2):93-100.
25. Urfi, P., Kormosne Koch, K., & Bacsi, Z. (2011). Cost and Profit Analysis of Organic and Conventional Farming in Hungary. Journal of Central European Agriculture, 12(1):103-113.
26. USDA (2017). Elements from Wheat Production. Data from the Commodity Costs and Returns Database, USDA, Washington DC, USA, Retrieved from: www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx (24th June, 2017).
27. Vasiljević, Z., Todorović, S., & Popović, N. (2008). An Influence of the Fuel Price Change on Optimization of Total Operating Costs of the Tillage Agricultural Machinery. Agricultural Engineering, 33(4):69-77.
28. Yu, X. T., Zhang, Z., & Yu, X. (2016). Using Financial Control to Answer Dilemma in Chinese Corn Market. 3rd International Conference on Social Science (ICSS, 2016), Shanghai, China, DEStech Publications Inc., Lancaster, USA, 458-464.
29. Ziolkowska, J. R. (2016). Socio-Economic Implications of Drought in the Agricultural Sector and the State Economy. Economies, 4(19):1-11. doi:10.3390/economies4030019
30. Zuppiroli, M., & Revoredo Giha, C. (2016). Hedging Effectiveness of European Wheat Futures Markets: An Application of Multivariate GARCH Models. International Journal of Applied Management Science, 8(2):132-148
2. Enghiad, A., Ufer, D., Countryman, A., & Thilmany, D. (2017). An Overview of Global Wheat Market Fundamentals in an Era of Climate Concerns. International Journal of Agronomy, 19, Article ID 3931897, 1-15, https://doi.org/10.1155/2017/3931897
3. FAO (2018a). Top 10 Country Production of Wheat. Database of FAO, Rome, Italy. Retrieved from: www.fao.org/faostat/en/#rankings/countries_by_commodity (March, 2018)
4. FAO (2018b). Top 10 Country, Export Value of Wheat. Database of FAO, Rome, Italy. Retrieved from: www.fao.org/faostat/en/#rankings/countries_by_commodity_exports (March, 2018)
5. Grewal, S., & Goel, S. (2015). Current Research Status and Future Challenges to Wheat Production in India. Indian Journal of Biotechnology, 14, 445-454.
6. Hallam, A., Eidman, V. R., Morehart, M., & Klonsky, K. (1998). Commodity Costs and Returns Estimation Handbook: A Report of the AAEA Task Force on Commodity Costs and Returns. Iowa State University, Department of Economics, Ames, USA.
7. Hassouneh, I., Serra, T., Bojnec, S., & Gil, J. M. (2017). Modelling Price Transmission and Volatility Spillover in the Slovenian Wheat Market. Applied Economics, 49(41):4116-4126.
8. Houck, J. P., & Ryan, M. E. (1972). Supply Analysis for Corn in the United States: The Impact of Changing Government Programs. American Journal of Agricultural Economics, 54(2):184-191.
9. Hubbard, G., Garnett, A., Lewis, P., & OBrien, A. (2013). Essentials of Economics. 2nd edition, Pearson Australia, Frenchs Forest, Australia.
10. Imexco (2017). Wheat exports by country. Portal of the Import-export & global supply chain (Imexco Int. Ltd.), Retrieved from: https://imexco-int.com/2017/12/25/wheat-exports-by-country/ (15th January, 2018).
11. Jeločnik, М., Zubović, Ј., & Zdravković, А. (2017). Procena šteta u proizvodnji pšenice izazvanih klimatskim faktorom. Ecologica, 87, 501-506.
12. Keeney, R. (2013). The End of the Direct Payment Era in U.S. Farm Policy. Expert paper no. EC-774-W, APEX - Ag. Policy Explained, Purdue Extension, 1-3. Retrieved from: www.extension.purdue.edu/extmedia/ec/ec-774-w.pdf
13. Kefyalew, A., & Henneberry, D. (1997). Wheat and Value-Added Wheat Export Market Segmentation. Journal of International Food & Agribusiness Marketing, 8(4):1-35, https://doi.org/10.1300/J047v08n04_01
14. Kiss, I. (2011). Significance of Wheat Production in World Economy and Position of Hungary in it. Applied Studies in Agribusiness and Commerce - APSTRACT, 5(1-2):115-119.
15. Kovačević, V., Jeločnik, M., Subić, J., Zekić, V., Milić, D., & Zubović, J. (2017). Causality Between Corn Production Cost and Cash Corn Price. Custos e @gronegócio, 13(4):2-16.
16. Lee, D. R., & Helmberger, P. G. (1985). Estimating Supply Response in the Presence of Farm Programs. American Journal of Agricultural Economics, 67(2):193-203.
17. Mekbib, G. H., Kalkuhl, M., & Braun, J. (2016). Worldwide Acreage and Yield Response to International Price Change and Volatility: A Dynamic Panel Data Analysis for Wheat, Rice, Corn, and Soybeans. American Journal of Agricultural Economics, 98(1):172-190.
18. Nerlove (1956). Estimates of the Elasticities of Supply of Selected Agricultural Commodities. Journal of Farm Economics, 38(2):496-509.
19. OECD (2008). Rising Food Prices: Causes and Consequences. OECD, Paris, France, Retrieved from: www.oecd.org/trade/agricultural-trade/40847088.pdf
20. Pejovich, S. (1990). The Economics of Property Rights: Towards a Theory of Comparative Systems. Kluwer Academic Publishers, Dordrecht, the Netherlands.
21. Rusnakova, M. (2015). Commodity Price Risk Management Using Option Strategies. Agricultural Economics, 61(4):149-157.
22. Shi, J., Zhao, Y., & Kiwanuka, R. (2014). Managing Inventories for Agricultural Products: The Optimal Selling Policies. Operations Research (under review), manuscript OPRE-2014-03-142, pp. 1-51, Retrieved from: https://web.njit.edu/~jshi/Shi-Zhao-Kiwanuka-OR.pdf (Jun, 2018)
23. Subić, J., Ivanović, L., & Jeločnik, M. (2010). The Impact of Subsidies on Variable Costs Covering in Field Cultures Production. Proceedings of XXIV Conference of Agronomists, Veterinarians and Technologists, 16(1-2):251-264.
24. Tomas Simin, M., Glavaš Trbić, D., Petrović, M., & Komaromi, B. (2019). Prices of Organic Products in the Republic of Serbia. Western Balkan Journal of Agricultural Economics and Rural Development, 1(2):93-100.
25. Urfi, P., Kormosne Koch, K., & Bacsi, Z. (2011). Cost and Profit Analysis of Organic and Conventional Farming in Hungary. Journal of Central European Agriculture, 12(1):103-113.
26. USDA (2017). Elements from Wheat Production. Data from the Commodity Costs and Returns Database, USDA, Washington DC, USA, Retrieved from: www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx (24th June, 2017).
27. Vasiljević, Z., Todorović, S., & Popović, N. (2008). An Influence of the Fuel Price Change on Optimization of Total Operating Costs of the Tillage Agricultural Machinery. Agricultural Engineering, 33(4):69-77.
28. Yu, X. T., Zhang, Z., & Yu, X. (2016). Using Financial Control to Answer Dilemma in Chinese Corn Market. 3rd International Conference on Social Science (ICSS, 2016), Shanghai, China, DEStech Publications Inc., Lancaster, USA, 458-464.
29. Ziolkowska, J. R. (2016). Socio-Economic Implications of Drought in the Agricultural Sector and the State Economy. Economies, 4(19):1-11. doi:10.3390/economies4030019
30. Zuppiroli, M., & Revoredo Giha, C. (2016). Hedging Effectiveness of European Wheat Futures Markets: An Application of Multivariate GARCH Models. International Journal of Applied Management Science, 8(2):132-148
Downloads
Published
2020-06-24
How to Cite
Jankovic, I., Kovačević, V., & Jeločnik, M. (2020). PRODUCTION COSTS AND MARKET PRICE OF WHEAT BEHAVIOR ANALYSIS AS A SUPPORT FOR HEDGING STRATEGIES. Economics of Agriculture, 67(2), 495–509. https://doi.org/10.5937/ekoPolj2002495J
Issue
Section
Original scientific papers
