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A Comparison Of The Economic Profitability Of Specified Risk Management Alternatives For Intermountain West Farmers

by Bingham, Cody D.

Abstract (Summary)
The purpose of this research is to provide quantitative and limited qualitative analysis for the United States Intermountain West on the economic effectiveness of risk management alternatives in an agricultural operation. This research is not meant to be an exhaustive comparison of every potential combination of alternatives and risk scenarios. Instead, specific parameters such as farm size, crops grown, risk attitudes and risk management strategies are set to guide the research and offer a basis of comparison. This research evaluates several levels of coverage using Multiple Peril Crop Insurance, Crop Revenue Coverage Insurance, Adjusted Gross Revenue - Lite Insurance and a limited interaction of the futures market. Microsoft Excel and the add-in Simetar was used to perform the quantitative analysis. A set of spreadsheets were created to allow a variety of data to be easily input and manipulated. The values used in this research were based on the 2002 Census of Agriculture to create a "typical" farm considered in Box Elder County, Utah. The results generated were sorted and ranked according to four decision criteria in relation to the net income observed in each simulated scenario. These include: the probability that net income will exceed $0; a maxi-min; a maxi-max; and the maximum positive net income at a probability of occurrence of 0.5, resembling a Safety-First criterion. The later three decision criterion used correspond to risk attitudes that may be possessed by a producer: risk adverse, risk preferring or seeking, and risk neutral respectively. The quantitatively "best" observed results were then qualitatively compared to the next "best" result. In general the conclusion is made that some strategy is better than no strategy and the "best" risk management strategy is one compatible with the risk attitude of the producer and the parameters of the farm in consideration. There is no single strategy for all decision criterions that consistently outperforms all other strategies considered in this research.
Bibliographical Information:

Advisor:

School:Utah State University

School Location:USA - Utah

Source Type:Master's Thesis

Keywords:agriculture risk crop insurance farm management intermountain west

ISBN:

Date of Publication:12/01/2008

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