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Risk Management Strategies to Reduce Net Income Variability for Farmers

Published online by Cambridge University Press:  28 April 2015

Hamid Falatoonzadeh ,
J. Richard Conner  and
Rulon D. Pope
Hamid Falatoonzadeh
Affiliation:
Texas A & M University California State University, Los Angeles
J. Richard Conner
Affiliation:
Texas A & M University
Rulon D. Pope
Affiliation:
Brigham Young University
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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 decisionmaking 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.

Keywords

risk managementquadratic programmingexpected utilityMonte Carlo simulation
Type
Submitted Articles
Information
Journal of Agricultural and Applied Economics , Volume 17 , Issue 1 , July 1985 , pp. 117 - 130
Copyright
Copyright © Southern Agricultural Economics Association 1985

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