Influence of farmers’ behavioral attitudes on hedging decisions

Abstract

Purpose The purpose of this paper is to analyze the factors, including behavior, that impact the knowledge and use of futures contracts among Brazilian coffee producers. The results are based on primary data obtained from a sample of 244 farmers. Design/methodology/approach A multinomial logistic regression model is adjusted to analyze the determinants of the producers’ choices. Findings The results show that behavioral variables play an important role in the decision to use futures contracts: risk propensity, self‐confidence in management, and the level of market monitoring. Variables such as education and crop size also factor into this decision. Research limitations/implications A limitation of this study is that the analysis of farmers’ decisions and behavior was limited to one year. Future research which examines a more comprehensive group of producers over a longer period can reveal in more detail the determining factors for the use of futures contracts as a price risk management tool in the coffee market. Originality/value The paper is the first to interview Brazilian coffee producers about their hedging decisions on a large scale. The main contributions this paper makes to the literature are the inclusion of behavioral variables in its analysis that will prove valuable in both future research and in the investment industry.