Understanding the intention to use commodity futures contracts

Abstract

Purpose Adoption rates of commodity futures contracts among farmers are rather low in Europe despite their political support. The purpose of this paper is to examine whether the Technology Acceptance Model (TAM) can contribute to the understanding of farmers’ intention to use commodity futures contracts. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation. Design/methodology/approach The study is based on an online survey with 134 German farmers using partial least squares structural equation modeling to estimate the TAM. Findings The intention to use commodity futures contracts is mostly driven by farmers’ motivation for speculation rather than price risk reduction. Assuming risk averse farmers, this result could explain low adoption rates. Furthermore, perceived ease of use has a positive effect on the intention to use commodity futures contracts. Practical implications Handling of price hedging instruments should be facilitated to increase farmers’ adoption. Effective marketing trainings, which can demonstrate the ability of commodity futures contracts to reduce price risk, could increase farmers’ motivation to use them for their risk management instead of speculation. Originality/value This study analyzes path relationships between constructs expected to influence the intention to use commodity futures contracts which are allowed to be estimated by the TAM in one model. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation. This is the first study applying the TAM to price risk management tools.

Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market

“…Th ese results indicate that farmers have appropriate expectations of the instrument. Th is is not self-evident, as research has shown that European farmers' sometimes expect fi nancial derivatives to enhance prices rather than stabilise them (Bergfj ord 2007;Michels et al 2019).…”

“…As agriculture is a risky business, policymakers and advisors have been advocating and stimulating the use of risk management instruments. Th is has particularly been the case in Europe, following the Common Agricultural Policy's shift from managed to unmanaged markets over the last decades (Veerman et al 2016;Michels et al 2019). One of the advocated solutions for managing price risk is the use of fi nancial derivatives, which allow farmers to manage risk without interfering with production choices and marketing channels.…”

“…In addition, using futures requires considerable marketing skills and eff ort. While US farmers commonly use futures, this is much less the case in Europe (Pennings and Egelkraut 2003;Michels et al 2019). Successful EU futures contracts exist for cereals (wheat, maise, rapeseed), potatoes and milk products (skimmed milk powder, butter).…”

Marketing contract choices in agriculture: The role of price expectation and price risk management

“…They are defined as “either verbal or written agreements between a buyer and a producer that set a price and/or an outlet for a commodity before harvest or before the commodity is ready to be marketed” (Harwood et al., 1999). Despite their increasing relevance, marketing contracts are not widely used (Pannell et al., 2008; Simmons, 2002), particularly in Europe (Michels et al., 2019). Using an original dataset, we propose here to identify factors influencing the adoption of marketing contracts by French farmers, with a specific focus on the hedging (price risk management) and the price‐enhancement components.…”

“…More recently, Michels et al. (2019) show that farmers’ intention to use futures contracts is mostly driven by their belief that commodity futures contracts can enhance received prices rather than price risk reduction.…”