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Effects of Federal Risk Management Programs on Optimal Acreage Allocation and Nitrogen Use in a Texas Cotton-Sorghum System

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  • Seo, Sangtaek
  • Mitchell, Paul D.
  • Leatham, David J.

Abstract

We analyze the effects of crop insurance and the Marketing Loan Program on optimal nitrogen use and acreage allocation for a case cotton-sorghum farm in Texas. A mathematical programming model is used to solve for the optimal nitrogen fertilizer rate, crop acreage allocation, coverage level, and price election factor, along with participation in the crop insurance and the Marketing Loan Program for both crops. Results show that depending on the crop and farmer risk aversion, these federal risk management programs increase or decrease optimal fertilizer rates-6% to 3%, increase optimal cotton acreage 94% to 144%, and decrease sorghum acres up to 50%.

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Bibliographic Info

Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 03 (December)
Pages:

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Handle: RePEc:ags:joaaec:43503

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Web page: http://www.saea.org/jaae/jaae.htm
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Related research

Keywords: crop insurance; extensive margin; intensive margin; loan deficiency payments; revenue insurance; Q12; Q18;

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  1. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(02), December.
  2. Bruce A. Babcock & Joseph A. Herriges, 1994. "Input Demand Under Yield and Revenue Insurance," Center for Agricultural and Rural Development (CARD) Publications 94-wp127, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  3. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
  4. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies Under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  5. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk and Probability Premiums for Cara Utility Function," Staff General Research Papers 596, Iowa State University, Department of Economics.
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Cited by:
  1. Xiaodong Du & David A. Hennessy & Cindy L. Yu, 2010. "Testing Day's Conjecture that More Nitrogen Decreases Crop Yield Skewness," Center for Agricultural and Rural Development (CARD) Publications 10-wp511, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Gustafson, Cole R. & Wilson, William W. & Dahl, Bruce L., 2006. "Production Risk And Crop Insurance In Malting Barley: A Stochastic Dominance Analysis," 2006 Annual meeting, July 23-26, Long Beach, CA 21095, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Buchholz, Matthias & Musshoff, Oliver, 2014. "The role of weather derivatives and portfolio effects in agricultural water management," 2014 Conference (58th), February 4-7, 2014, Port Maquarie, Australia 165812, Australian Agricultural and Resource Economics Society.
  4. Mitchell, Paul D. & Knight, Thomas O., 2007. "Economic Analysis of Supplemental Deductible Coverage as Recommended in the USDA's 2007 Farm Bill Proposal," Staff Paper Series 509, University of Wisconsin, Agricultural and Applied Economics.

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