M.Com. (Financial Management) / This paper investigates the use of weather derivatives in the maize production industry of South Africa. The history, users and mechanics of weather derivatives and maize production are presented in the study. This study examines, by using experiential design, the potential revenue for a control and a test group of farmers using monthly, actual maize production and weather observations for the period 2000 - 2010. This study suggests, with reference to the results, an option strategy that ultimately results in the hedging of maize output risk for the farms investigated. Limitations of the study are basis risk, liquidity, the difficulties in pricing of the weather derivative and finally the reticence of agricultural business to explore these hedging instruments in practise. In conclusion the study presents suggestions for further research into the wider application of weather derivatives into other industries, the exploration of the effects of weather on changes in crop yield and the effects of a hybrid maize crop and its possible resilience to weather changes. This study also demonstrates the weather effects on maize output and suggests a hedging solution to yield.

M.Com. (Economics) / Although, approximately 80 percent of Lesotho’s population is dependent on agriculture, its grain output has continued to decline in absolute and relative terms. Average yields per hectare of maize are estimated to have dropped by 42 percent in 2006/07. It seems maize production is randomly and systematically impeded to change from subsistence to commercialised production - aimed at producing market surpluses according to principles and motives vested in specific abilities and formalised in law. Agriculture’s contribution to GDP is approximately 16 percent. In order to address poverty, the trend should be reversed. In a complete study, all the possible contributions, including costs and benefits for agriculture, the significance of impediments in Lesotho will be investigated. This study, examines risk impact on agriculture production, income and returns. It is standard to assume economic related factors underlie an inability to produce satisfactory and sustainable agricultural production. This study tests the significance of such an assumption. This paper proposes that the ground for such an assumption, one of underlying economic factors being instrumental in an inability to commercialise maize production, will be evident in the source of economic risk and pricing. Product price premiums, as measures in off-setting systematic economic and portfolio risk, are reviewed. Self-insurance and diversification are key instruments in managing the systematic and specific risk facing the agricultural sector in general, and maize production specifically. If collaboration prevails along with partial compensation and/or diversification for risk, then economic risk may not be the only factor preventing surplus maize production, or the only supporting factor or commercial motive in maximising returns through maize production. The finding of the study is that economics in general and economic risk are not significant impediments to the commercialisation of maize production. This study is different from other research in this field in that it moves away from the standard assumption that economic factors are central in impeding commercial agricultural production research has also to be focused on factors autonomous of the economy but which effect economic outcomes like cultural impediments in developing economies like Lesotho. The study indicates, by analysing the higher moments (economic risk) of the stochastic nature in economics as a specific attempt to prevent any ambiguousness, that economic decisions are to a great extend motivated by factors other than economic factors in many instances in great and in increasing conflict with economic principles. This founds a motivation for a shift in focus and is the study’s contribution to research in this field. It also contributes to the on-going debate in South Africa as to the problems and underlying factors in the commercialisation of subsistence agricultural production in South Africa.

Corn-based ethanol production has increased dramatically in the past ten years, causing an increase in demand for corn by ethanol producers and an increase in production of ethanol by-products such as distillers' grains. The increase in ethanol production can be attributed to ethanol policy at the state and federal levels. Because of the increase in production of corn-based ethanol, cattle producers face greater competition for a major feed source, corn, and greater supply of an emerging feed source, distillers' grains. The objective of this study is to analyze and quantify the effects of ethanol policy on cattle production. A theoretical model and an econometric model are used to fulfill the objectives of this study. The theoretical model contains an ethanol model and a general livestock model. Results of the theoretical model present the possibilities of ethanol policy affecting cattle production. The econometric model identifies the indirect and direct effects of ethanol policy on cattle production. The results of the econometric model indicate that there is a relationship between ethanol policy, specifically the Renewable Fuel Standard, and cattle production.

Please read the abstract in the 00front part of this document / Dissertation (MSc Agric (Agricultural Economics))--University of Pretoria, 2006. / Agricultural Economics, Extension and Rural Development / unrestricted

With many genetic traits discovered and many more in progress, it is imperative to the industry that firms (biotechnology companies) decide on the trait valuation and pricing. This includes more than one trait (also referred to as stacked traits) in a single variety of crop; the risk and uncertainty of expected returns associated with the development and release of a variety increases even more in case of stacked traits. The purpose of this thesis is to develop a model that can be used for the valuing and pricing of genetically modified (GM) traits that are random, sporadic, and non-persistent (e.g. drought tolerance, heat/cold stress) using the real option approach. The efficiency gain in case of occurrence of random event and expression of GM traits will be measured and used as a decision factor in determining the value of GM trait(s) at different phases of development. Risk premiums representing the value of GM trait to growers is calculated across risk averse attitudes. The return to labor and management (RTLM) provided by a GM trait is used to calculate the risk premiums when variation in parameters is allowed to be same as that reflected in historical data and gains from GM traits are realized. Monte Carlo simulation and stochastic efficiency with respect to a function (SERF) are used to estimate the certainty equivalents that decision makers would place on a risky alternative relative to a no risk investment. Certainty equivalents are estimated across a range of risk aversion coefficients and used to rank alternatives and determine where preferences among alternatives change while estimating risk premiums for the base case (no trait), drought tolerance, cold tolerance, NUB, and All traits (all traits combined into one as a stacked trait). Premiums provide perspective on the magnitude of differences in relative preferences among choices. The range of ARAC utilized was from 0.00 to 0.15 for all three crops. The risk premiums are treated as a potential source of revenue in the model as a technology fee charged by a biotech company. This thesis uses the Real Option methodology to evaluate GM traits as Option values at various stages of development. This approach helps managers decide the best possible option in making a certain decision today. It is also helpful in comparing different pathways (series of decisions) and thus better exploits the potential cash return in the future from investments made today (Figure D.1, Figure D.2). Three possible options to "continue", "wait", and "abandon" were modeled in this thesis. Such modeling determines the possible option values of GM traits at different stages of development depending on the kind of choices made at different points of time. This thesis shows that various GM traits that are out-of-money (OTM) at initial stages have increased probability of being in-the-money (ITM) at later stages of development. Sensitivities show that a share of potential technology fees and acreage of GM crops play a significant role in option values being ITM. Stacked traits provide a better chance of being ITM, thus the option to continue will be exercised by management. The option to wait causes reduction in option value. Among individual traits, drought tolerance has the greatest maximum option value in most cases. Therefore, if management has to choose the development of only one GM trait, it is most likely to choose to invest in the development of drought tolerance.