I am looking for statistics related to forward contracts results e.g.: the tipical compliance percentages per product has been experienced in the practice when forward contracts are involved, or the bad debts percentage were not ever collected.
This is to determine a risk measure and what could be the real ROI for an investor.
Yes, sorry, Steven et all.
are "forward contracts", i made a mistake in the title.
That is the best way to reduce poverty for the farmers if are associated with a state of the art person to person web assisted distribution scheme supported by a well designed logistic.
I found an experience did by "one acre found", but i cannot reach them to dig into the percentage of bad debts they got with the farmers in Africa, so i can outline the scenarios for the investors in order to determine the payback time and the exposure of the capital with the forward contracts.
I am researching for that model applied to potatoes ex andean poor farmers, and will do for pigeon peas in the coast of Ecuador as well if all goes good, the latter conducting an actual exercise for exportation of them to Canada.
Do you have some information can be of help to know what are the ratios or percentages of operations failed (the seller did not deliver the goods or the crop was lost) when using Forward Contracts, please let me know how do i can obtain it withou expensive investments provided i am not interested in a subscription to an specialized bureau of trading using futures or forward contracts.
Thank all of you in advance for any help.
Kléber
Hi Kleber, that is a good question.
I will assume in agricultural finance (as in traditional banking), that there is a strong correlation between a person or firm's creditworthiness and risk of default. Though an imperfect analogy, attached is a slide of credit rating vs. default rates of US corporations over time. I believe this data, but for farmers and agricultural forward contracts, is what you really seek.
What complicates your issue further is that default rates on agricultural contracts in the U.S. are small since many farmers have crop insurance (see attached). If the farmers have crop insurance then they will generally have the funds to buy the contract back at the prevailing price and fulfill their obligation.
However, what I believe you are alluding to is very small farmers with not much money selling in advance directly to foreign buyers but have the very real risk of not having any money to pay to have the contract fulfilled if the crop is not grown for whatever reason. That situation can only be mitigated by some sort of insurance or third counter-party who can assume that risk. That is the role of the exchanges that facilitate standard agricultural commodities futures contracts.
It sounds like a very interesting project, good luck!
-Steve
Thank you Steve.
Your lecture is right, and the enclosed documents very useful.
Here in Ecuador the Agriculture Department of the Government has encouraged an insurance policy to cover some risks on the crops what is interesting for the purpose of the project.
Again thank you.
I will keep you posted on progress this way.
Kléber
With no deep knowledge on rural economics, I donot believe they actually price their product on forwards. You have to find the pricing formula they follow. Indeed the state in order to take advantage of scale economies they try to develop a hedging mgmt strategy but its still in infancy. In any case pricing has to do mostly with quality of specific crops and not on the quality as determined by formalized CME or LME frwrd Contracts. Try to find the spot pricing method. This will clear the picture as well as the basis risk which up to a point might give an answer to your question.
Thank you Petros.
Your input is interesting and will analyze it for the research i am pursueing.
Kléber
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