Evaluating crop insurance and marketing strategies for Indiana corn and soybean producers

David C Moll, Purdue University

Abstract

Price volatility has recently increased in the corn and soybean markets. As the price risk environment has changed for producers, risk management strategies need to be reexamined. Which strategies provide downside revenue protection and high mean revenues? The strategies considered are pre-harvest hedging with different marketing contracts at various levels of expected production and different types of crop insurance at various coverage levels. By comparing the performance of strategies for Indiana corn and soybean producers in different scenarios, some conclusions can be drawn. Performance of the risk management strategies in terms of mean revenue and downside risk protection are compared for three Indiana counties. The counties differ in level of yields and yield variability and scenarios of low and high-price volatility. The main conclusion is with increased price volatility, the performance of risk management strategies has changed. Hedging grain pre-harvest provides higher mean revenues than selling at harvest. However, hedging too much of expected production in the high price volatility time period is associated with a penalty due to yield shortfalls. Although a producer can increase mean revenues by hedging pre-harvest, too much hedging of expected production can cause lower 5% VaR revenues for a producer. The use of GRIP insurance at high coverage levels provides both higher mean revenues and 5% VaRs than farm-based insurance; however this result depends on the correlation of county to farm-yields.

Degree

M.S.

Advisors

Alexander, Purdue University.

Subject Area

Marketing|Agriculture|Agricultural economics

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