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Mitigating Cotton Revenue Risk Through Irrigation, Insurance, and Hedging

E. Hart Bise Barham, John R.C. Robinson, James Richardson () and M. Edward Rister

Journal of Agricultural and Applied Economics, 2011, vol. 43, issue 04

Abstract: This study focuses on managing cotton production and marketing risks using combinations of irrigation levels, put options (as price insurance), and crop insurance. Stochastic cotton yields and prices are used to simulate a whole-farm financial statement for a 1,000 acre furrow irrigated cotton farm in the Texas Lower Rio Grande Valley under 16 combinations of risk management strategies. Analyses for risk-averse decision makers indicate that multiple irrigations are preferred. The benefits to purchasing put options increase with yields, as they are more beneficial when higher yields are expected from applying more irrigation applications. Crop insurance is strongly preferred at lower irrigation levels.

Keywords: cotton; crop insurance; irrigation; options; puts; risk; simulation; stochastic efficiency with respect to a function; Farm Management; Risk and Uncertainty; D81; Q12; Q15 (search for similar items in EconPapers)
Date: 2011
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