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Risk Management Strategies To Reduce Net Income Variability For Farmers

Author

Listed:
  • Falatoonzadeh, Hamid
  • Conner, J. Richard
  • Pope, Rulon D.

Abstract

The most useful and practical strategy available for reducing variability of net farm income is ascertained. Of the many risk management tools presently available, five of the most commonly used are simultaneously incorporated in an empirically tested model. Quadratic programming provides the basis for decision-making in risk management wherein expected utility is assumed to be a function of the mean and variance of net income. Results demonstrate that farmers can reduce production and price risks when a combination strategy including a diversified crop production plan and participation in the futures market and the Federal Crop Insurance Program (FCIP) is implemented.

Suggested Citation

  • Falatoonzadeh, Hamid & Conner, J. Richard & Pope, Rulon D., 1985. "Risk Management Strategies To Reduce Net Income Variability For Farmers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 0(Number 1), pages 1-14, July.
  • Handle: RePEc:ags:sojoae:29374
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    File URL: http://ageconsearch.umn.edu/record/29374/files/17010117.pdf
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    References listed on IDEAS

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    1. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-548, May/June.
    2. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 317-328.
    3. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    4. Anderson, Jock R. & Feder, Gershon, 2007. "Agricultural Extension," Handbook of Agricultural Economics, Elsevier.
    5. Chavas, Jean-Paul & Pope, Rulon D., 1982. "Hedging And Production Decisions Under A Linear Mean-Variance Preference Function," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 0(Number 1), pages 1-12, July.
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    Cited by:

    1. Dubman, Robert W., 1988. "Establishing Peanut Purchasing Contract Terms With Uncertain Market Prices And Input Supplies," Journal of Food Distribution Research, Food Distribution Research Society, vol. 0(Number 1), pages 1-14, February.
    2. Tabesh, Hamid, 1987. "Hedging price risk to soybean producers with futures and options: a case study," ISU General Staff Papers 1987010108000010306, Iowa State University, Department of Economics.
    3. Olsen, Douglas Ray, 1990. "An analysis of the use of farm marketing and crop insurance risk transfer tools by Iowa farm characteristics," ISU General Staff Papers 1990010108000018157, Iowa State University, Department of Economics.
    4. Thornsbury, Suzanne & Martinez, Lourdes R. & Schweikhardt, David B., 2007. "Michigan: A State at the Intersection of the Debate over Full Planting Flexibility," Agricultural Economic Report Series 10925, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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    Keywords

    Risk and Uncertainty;

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