Analyzing White Maize Hedging Strategies in South Africa

Abstract

The objective of this chapter is to demonstrate the mixed use of a quantitative and qualitative data to test whether white maize producers’ perceptions about price risk management could be improved by the provision of reliable price formation predictions and the identification of more optimal hedging strategies. A post-positivistic paradigm was adopted that embraces an interpretivist philosophy to find out why maize producers are reluctant to use derivative contracts to hedge their price risk, while a positivist philosophy was adopted to determine the profitability of different hedging strategies currently employed by market participants in the white maize derivatives market. This was achieved in two phases. Firstly, since the reluctance to use derivative contracts is a subjective view on the part of the individual maize producer, an ethnographic strategy was followed during the fieldwork. Data were collected through interviews, which were interpreted inductively. Secondly, to prove that successful hedging strategies can be replicated, the researchers were making use of daily closing prices in the form of futures and options contracts on SAFEX. The results obtained in the second phase were interpreted deductively.