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Estimating The Impacts Of Differing Price-Risk Management Strategies On The Net Income Of Salinas Valley Lettuce Producers: A Stochastic Simulation Approach

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  • Fumasi, Roland J.
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    Abstract

    While government safety-net programs are used to mitigate the price risk for commodity producers, limited programs exist for specialty crop producers. Specialty crop producers utilize forward contracts to reduce downside price risk. In order to estimate the method of price-risk management, if any, that is preferable to selling at market determined prices, a stochastic simulation model was constructed. The completed simulation model was used to estimate probability distributions for Salinas Valley net income under different pricing scenarios. Probabilities of reaching various net income thresholds were compared. Results indicate that Salinas Valley lettuce producers should maximize profitability by using forward contracts.

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    File URL: http://purl.umn.edu/36310
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    Bibliographic Info

    Paper provided by Western Agricultural Economics Association in its series 2005 Annual Meeting, July 6-8, 2005, San Francisco, California with number 36310.

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    Date of creation: 2005
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    Handle: RePEc:ags:waeasa:36310

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    Keywords: Farm Management; Risk and Uncertainty;

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    1. Bruce A. McCarl & David A. Bessler, 1989. "Estimating An Upper Bound On The Pratt Risk A Version Coefficient When The Utility Function Is Unknown," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 33(1), pages 56-63, 04.
    2. Menkhaus, Dale J. & Bastian, Christopher T. & Phillips, Owen R. & O'Neill, Patrick D., 2000. "Supply And Demand Risks In Laboratory Forward And Spot Markets: Implications For Agriculture," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
    3. Torre Ugarte, Daniel de la & Sanford, Scott & Skinner, Robert A. & Westcott, Paul C. & Lin, William W., 2000. "Supply Response Under The 1996 Farm Act And Implications For The U.S. Field Crops Sector," Technical Bulletins 33568, United States Department of Agriculture, Economic Research Service.
    4. Baires, Filadelfo & Clevenger, Tom, 1977. "The Propensity To Excess Capacity In The Lettuce Subsector," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 1(01), June.
    5. Cowan, Robin & Gunby, Philip, 1996. "Sprayed to Death: Path Dependence, Lock-In and Pest Control Strategies," Economic Journal, Royal Economic Society, vol. 106(436), pages 521-42, May.
    6. Roberts, Michael J. & Osteen, Craig D. & Soule, Meredith J., 2004. "Risk, Government Programs, And The Environment," Technical Bulletins 33563, United States Department of Agriculture, Economic Research Service.
    7. Handy, Charles R. & Thompson, Gary D. & Glaser, Lewrene K., 2001. "Recent Changes In Marketing And Trade Practices In The U.S. Lettuce And Fresh-Cut Vegetable Industries," Agricultural Information Bulletins 33601, United States Department of Agriculture, Economic Research Service.
    8. Miguel Carriquiry & Bruce A. Babcock, 2002. "Can Spot and Contract Markets Co-Exist in Agriculture?," Center for Agricultural and Rural Development (CARD) Publications 02-wp311, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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