Proposed Farm Bill Impact On The Optimal Hedge Ratios For Crops

Revenue insurance with shallow loss protection for farmers has been introduced recently. A common attribute of most shallow loss proposals is that they would be area-revenue triggered. The impact on optimal hedge ratios of combining these shallow loss insurance proposals with deep loss farm-level insurance is examined. Since crop insurance, commodity programs and forward pricing are commonly used concurrently to manage crop revenue risk, the optimal combinations of these tools are explored. Numerical analysis in the presence of yield, basis and futures price variability is used to find the futures hedge ratio which maximizes the certainty equivalent of a risk averse producer. The results generally reveal a lower optimal hedge ratio with area-insurance than with individual insurance and show that STAX and ARC tend to slightly increase optimal hedge ratios.


Issue Date:
2013
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/143050
Total Pages:
23




 Record created 2017-04-01, last modified 2017-08-26

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