Production costs and market price of wheat behavior analysis as a support for hedging strategies

Abstract

Information on the linkage between production costs and market price of wheat allows farmers to forecast the direction of the market price and reduce the immanent business risks on the farm - whether to sell 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 sales and store their product in anticipation of a higher price in the near future. This behavior is based on the premise that supply shortage will stop further decline in wheat price. The results of the analysis indicate a strong positive correlation between operating costs and market price of wheat. This indicator allows forecast of the future wheat price behavior and timely decision on the appropriate price risk hedging strategy.

Keywords

• wheat's total and operating production costs
• wheat market price forecast
• hedging strategies