Take hedging of maize prices seriously

Maize producers who didn’t hedge some of their production earlier in the year when prices were still above R2 000/t, probably found it difficult to cover term debts over and above their production costs, according to Keneilwe Nailana, Standard Bank’s agribusiness manager.

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“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.

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