“This just emphasises the importance of locking in your prices. Farmers should take hedging seriously to avoid carry-over debt,” he told Farmer’s Weekly.
Maize producers should make use of the existing market mechanisms to ensure long-term sustainable and profitable production. They can, for instance, protect their businesses by hedging some of the crop with put options to secure a minimum price early in the season, with an opportunity to fix prices after the mid-summer drought if prices improve.
Buying a put option gives the farmer the right to sell the maize at a certain price, but not the obligation to exercise that right.
Considering that maize farmers are basically price takers, production cost is one thing they can influence to a certain degree to improve their margins. Farmers should consider less conventional farming methods and move to more environmentally friendly methods to reduce their production costs, said Nailana.
