Assessment of Risk When Contract Crops are Included Among Other Crop Alternatives*

James B. Kliebenstein and John T. Scott

Journal of Agricultural and Applied Economics, 1975, vol. 7, issue 2, 105-110

Abstract: All those who have worked closely with farmers know that uncertainties in farming are great. They stem from many sources — natural forces such as weather, disease, variation in market prices, etc. Some uncertainties, e.g., weather hazards such as hail, can be insured against; others can be reduced by increased wealth. Farmers can also reduce uncertainty through contracting, as these may specify price and quantity. Most crops grown in the U.S. Central Cornbelt are sold on highly developed public markets with daily prices and offerings. While target prices for soybeans and corn exist, price uncertainty still remains at the time farmers make decisions. Futures markets have long been available. However, few farmers use futures markets to predetermine prices in their crop planning process. One reason for this is that while use of futures markets can remove price risks, biological weather risks remain.

Date: 1975
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