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Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution

  • Hennessy, David A.

The use of plausible stochastic price processes in price risk analysis has allowed advances not seen in crop yield risk analysis. This study develops a stochastic process for yield modeling and risk management. The Pólya urn process is an internally consistent dynamic representation of yield expectations over a growing season that accommodates agronomic events such as growing degree days. The limiting distribution is the commonly used beta distribution. Binomial tree analysis of the process allows us to explore hedging decisions and crop valuation. The method is empirically flexible to accommodate alternative assumptions on the growing environment, such as intra-season input decisions.

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File URL: http://purl.umn.edu/105548
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Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 36 (2011)
Issue (Month): 1 (April)
Pages:

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Handle: RePEc:ags:jlaare:105548
Contact details of provider: Web page: http://waeaonline.org/

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  1. Hennessy, David A., 2012. "Crop Yield Skewness and the Normal Distribution," Staff General Research Papers 35019, Iowa State University, Department of Economics.
  2. Vedenov, Dmitry V. & Barnett, Barry J., 2004. "Efficiency of Weather Derivatives as Primary Crop Insurance Instruments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(03), December.
  3. 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.
  4. Oliver Musshoff, 2008. "Indifference Pricing of Weather Derivatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 979-993.
  5. Roosen, Jutta & Hennessy, David A., 2001. "Tests For The Role Of Risk Aversion On Input Use," 2001 Annual meeting, August 5-8, Chicago, IL 20498, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Robert Innes, 2003. "Crop Insurance in a Political Economy: An Alternative Perspective on Agricultural Policy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 318-335.
  7. Weninger, Quinn & Just, Richard E., 1999. "Are Crop Yields Normally Distributed?," Staff General Research Papers 5064, Iowa State University, Department of Economics.
  8. Octavio A. Ram�rez & Tanya McDonald, 2006. "Ranking Crop Yield Models: A Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 1105-1110.
  9. Joseph Atwood & Saleem Shaik & Myles Watts, 2003. "Are Crop Yields Normally Distributed? A Reexamination," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 888-901.
  10. Roger Claassen & Richard E. Just, 2010. "Heterogeneity and Distributional Form of Farm-Level Yields," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 144-160.
  11. Woodard, Joshua D. & Garcia, Philip, 2008. "Weather Derivatives, Spatial Aggregation, and Systemic Risk: Implications for Reinsurance Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(01), April.
  12. Antle, John M. & Capalbo, Susan Marie & Crissman, Charles C., 1994. "Econometric Production Models With Endogenous Input Timing: An Application To Ecuadorian Potato Production," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(01), July.
  13. Jean-Daniel M. Saphores, 2000. "The Economic Threshold with a Stochastic Pest Population: A Real Options Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 541-555.
  14. 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.
  15. Jerry R. Skees & Jason Hartell & Anne G. Murphy, 2007. "Using Index-Based Risk Transfer Products to Facilitate Micro Lending in Peru and Vietnam," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1255-1261.
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