POTENTIAL DEMAND FOR HEDGING BY AUSTRALIAN WHEAT PRODUCERS

The potential for hedging Australian wheat with the new Sydney Futures Exchange wheat contract is examined using a theoretical hedging model parametised from previous studies. The optimal hedging ratio for an ' average' wheat farmer was found to be zero under reasonable assumption s about transaction costs and based on previously published measures o f risk aversion. The estimated optimal hedging ratios were found by si mulation to be quite sensitive to assumptions about the degree of risk aversion. If farmers are significantly more risk averse than is curre ntly believed, then there is likely to be an active interest in the ne w futures market.