Using climate information to approximate the value at risk of a forward contracted canola crop
In recent decades farmers have used financial instruments such as cash forward contracts to lock-in a price for increasing proportions of their crop through different stages of the production cycle. Given the high variability of the Australian climate this practice has inherent risk with drought induced crop failure being significantly probable. Under failed crop conditions farmers buy themselves out of the contracted position at prevailing prices thereby compounding the financial burden of crop failure. This paper reports on the role of the relatively recent developments in climate prediction, based on the SOI phase system, to develop crop yield probability distributions using regression approximation and to evaluate the Value at Risk of establishing a forward contracted position. Value at Risk is here defined as the 5% interval of the probability distribution of Enterprise Gross Margin and is used to ascertain the capital adequacy of a business in the face of a worst-case scenario.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000.
"Are we risking too much? Perspectives on risk in farm modelling,"
Agricultural Economics of Agricultural Economists,
International Association of Agricultural Economists, vol. 23(1), June.
- Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics, Blackwell, vol. 23(1), pages 69-78, June.
- Thomas J. Linsmeier & Neil D. Pearson, 1996. "Risk Measurement: An Introduction to Value at Risk," Finance 9609004, EconWPA.
- Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier.
- Linsmeier, Thomas J. & Pearson, Neil D., 1996. "Risk measurement: an introduction to value at risk," ACE Reports 14796, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
When requesting a correction, please mention this item's handle: RePEc:ags:afbmau:123144. See general 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: (AgEcon Search)
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.