Factors Affecting the Hedging Decision of Maize Farmers in Gauteng Province

The maize industry in South Africa has a long history of government intervention, fuelled by the two Marketing Acts (of 1937 and 1968). After the introduction of the Marketing of Agricultural Products Act (Act 47 of 1996), farmers were exposed to international maize prices, i.e. to the forces of global supply and demand. Through forward contracting (hedging), farmers can minimize the price risk that they are facing. Different factors affect the hedging decisions of farmers. The main objective of this study was to identify those factors for maize farmers in Gauteng, and hence to gain an understanding of their rate of adoption of hedging strategies. A Probit regression equation was estimated, and the results show that the factors that have the most influence are the gender, age, and agricultural qualification of the principal decision maker; whether the decision maker is a member of a grain association and the size of that grain association; the length of period that the decision maker has been producing grain; the size of the farm; whether the farmer rents in land; the proportion of off-farm income earned; and whether the farmer takes out insurance.