Risk management strategies for Indiana producers in the presence of fertilizer price risk
Abstract
There has been little research on understanding the interactions among input price risk, crop insurance, and preharvest marketing decisions of producers. A parametric stochastic simulation was used to model fertilizer, local harvest cash, and December corn future price distributions as well as county and farm yields for an Indiana producer. Various risk management strategies were analyzed and compared in their ability to reduce risk in the distribution of net income. As in previous studies, combinations of crop insurance and preharvest marketing were found to produce the largest reductions in risk compared to the naïve strategy of doing nothing. The preferred choice of insurance was dependent on the correlation and relative variability between farm and county yields. The process of simultaneously offsetting input purchases with equivalent dollar amounts of grain hedges resulted in the largest risk reductions when compared to other successful preharvest marketing options from previous literature.
Degree
M.S.
Advisors
Baker, Purdue University.
Subject Area
Agricultural economics
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