IDEAS home Printed from
   My bibliography  Save this article

Using climate information to approximate the value at risk of a forward contracted canola crop


  • Wallace, Garry E.
  • Samsul Huda, A.K.


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.

Suggested Citation

  • Wallace, Garry E. & Samsul Huda, A.K., 2005. "Using climate information to approximate the value at risk of a forward contracted canola crop," AFBM Journal, Australasian Farm Business Management Network, vol. 2(1).
  • Handle: RePEc:ags:afbmau:123144

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Thomas J. Linsmeier & Neil D. Pearson, 1996. "Risk Measurement: An Introduction to Value at Risk," Finance 9609004, EconWPA.
    2. 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.
    3. 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.
    4. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.