Effects of crop acreage and aggregation level on price-yield correlations
AbstractPurpose – The purpose of this paper is to analyze the effects of data aggregation and farm-level crop acreage on the level of natural hedge, i.e. the level of price-yield correlations, which is an important issue in risk modeling and management. Design/methodology/approach – Swiss FADN data for five crops covering the period 2002-2009 are used to estimate price-yield correlations at the farm- as well as on an aggregated level. Tobit regressions are used to estimate empirical relationships between the level of natural hedge and the underlying crop acreage. Findings – Price-yield correlations differ significantly between farm- and aggregated-level. More specifically, the natural hedge observed at the farm-level is much smaller, i.e. correlations are closer to zero. Taking correlations from aggregated levels thus leads to an underestimation of farm-level revenue variability. Furthermore, it is found that larger farms have a stronger natural hedge. For instance, a 1 percent increase in area under maize and intensive barley leads to a change in the correlation by -0.02 and -0.08, respectively. Practical implications – The natural hedge is often approximated with correlations observed at more aggregated levels, e.g. the county level. The results show that this implies errors in risk assessment and modeling as well as insurance applications. Thus, farm-level estimates should be used. The here presented relationship between price-yield correlations and farm-level crop acreage can be used to derive better information on levels of the natural hedge. Originality/value – Even though the effects of data aggregation on price-yield correlations have been discussed in earlier research, this paper is the first to also account for on-farm effects of underlying crop acreage on levels of natural hedge. It is found that this simple relationship can be useful in risk management and modeling applications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Agricultural Finance Review.
Volume (Year): 72 (2012)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.