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Hedging a Government Entitlement: The Case of Countercyclical Payments

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  • Anderson, John D.
  • Coble, Keith H.
  • Miller, J. Corey

Abstract

This research evaluates whether the introduction of countercyclical payments creates an incentive for program crop producers to hedge the expected government payment using futures and/or options. Results indicate that some level of countercyclical payment hedging is optimal for risk-averse decision makers. However, optimal hedge ratios depend on planting time expectations of marketing year average price as well as on what crop, if any, has been planted on countercyclical payment base acres. These results suggest that the ability to hedge may make these payments more decoupled but also illustrate the distortion of producer behavior induced by farm programs.

Suggested Citation

  • Anderson, John D. & Coble, Keith H. & Miller, J. Corey, 2007. "Hedging a Government Entitlement: The Case of Countercyclical Payments," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 39(3), pages 507-522, December.
    • Handle: RePEc:cup:jagaec:v:39:y:2007:i:03:p:507-522_02
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    Cited by:

    1. Wang, Yang & Barnett, Barry J. & Coble, Keith H. & Harri, Ardian, 2012. "Yield Aggregation Impacts on a “Deep Loss” Systemic Risk Protection Program," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124875, Agricultural and Applied Economics Association.

    More about this item

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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