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.