MARKETING AND CROP INSURANCE COMBINED TO MANAGE RISK ON A CASS COUNTY REPRESENTATIVE FARM

Aaron D. Clow and George K. Flaskerud

No 23517, Agribusiness & Applied Economics Report from North Dakota State University, Department of Agribusiness and Applied Economics

Abstract: This study analyzed the effects that the use of crop insurance products and marketing alternatives had on the gross revenue per acre for an individual farm in Cass County. Crop insurance products and marketing strategies were analyzed individually to determine if they were effective in minimizing down side risk, and combined to determine if integration created synergies. A whole farm scenario analysis was run that included integrated strategies that implemented the same insurance coverage and marketing alternatives for each crop. Several general conclusions can be drawn for situations similar to the representative farm. When analyzed at the individual crop level, the use of crop insurance at the 65 percent level minimizes down side risk in wheat and corn, but not significantly in soybeans. Marketing alternatives generally increase the up side potential of gross revenue per acre, while doing little to minimize the down side risk. The integration of crop insurance products and marketing alternatives create a synergy at the lower levels of value at risk, where the down side risk is located. However, the use of integrated strategies does not increase the chances of achieving a cash flow breakeven gross revenue per acre over the base strategy, which did not include insurance or marketing alternatives. The breakeven level is not reached until the 70 percent level, which means that 7 out of 10 years, the farm will not cash flow. Output from the Bullock and AgRisk models are similar. This study may be used as a guide for producers and analysts in studying risk management strategies. To assist in the individual decision making process, further study will need to be done with yield data and budgets for the individual farm.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 66
Date: 2001
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:nddaae:23517

DOI: 10.22004/ag.econ.23517

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