A Portfolio Approach to Grain Marketing and Crop Insurance Strategies for an Indiana Case Farm

Gloria Koester Lenfestey, Purdue University

Abstract

While many studies have evaluated corn and soybean marketing strategies and crop insurance coverage levels separately, few studies have examined their interactions simultaneously. This study evaluated the risk return tradeoff between marketing and crop insurance strategies in a portfolio context. The Target MOTAD model was the primary method used to explore the tradeoffs between expected returns and downside risk. On average, the hedge and roll strategy had the highest net return over the 30-year period for both corn and soybeans. When corn and soybeans were evaluated separately, results indicated that the optimal combination of marketing strategies was not dependent on crop insurance coverage levels. The strategies contributing to an optimal portfolio for corn were a mixture of the hedge and roll strategy, and the marketing year cash price strategy. Combining the hedge and roll strategy with the marketing year cash price strategy was also optimal for soybeans. When corn and soybean strategies were optimized simultaneously, however, optimal marketing strategies were dependent on the crop insurance coverage level chosen. The optimal marketing strategies to mitigate risk for the 75 and 80 percent revenue protection plan included the corn hedge and roll strategy, the soybean marketing year cash price strategy, and the soybean six-month cash price strategy. For the 85 percent revenue protection plan, the optimal marketing strategies were the corn hedge and roll strategy, soybean marketing year cash price strategy, and the soybean hedge and roll strategy. For the 90 and 95 percent supplemental coverage option (SCO) and enhanced coverage option (ECO) plans, the optimal marketing strategies were the corn marketing year cash price, the corn hedge and roll, and the soybean six-month cash price strategy.

Degree

M.S.

Advisors

Langemeier, Purdue University.

Subject Area

Agriculture|Agronomy

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