Farm-Level Risk Management Using Irrigation and Weather Derivatives

Shanshan Lin, Jeffrey Mullen and Gerrit Hoogenboom

Journal of Agricultural and Applied Economics, 2008, vol. 40, issue 2, 485-492

Abstract: An agronomic crop growth model—the Decision Support System for Agro-Technology Transfer—and a constant relative risk aversion utility function are used to examine corn irrigation strategies in Mitchell County, Georgia. Precipitation contracts are designed to help farmers manage risk. Three conclusions originate from the findings. First, the optimal irrigation strategy can greatly increase producers' certainty-equivalent revenue. Second, changes in water pricing policy would have a limited impact on the amount of water used. And third, across levels of risk preference, the precipitation contracts are not effective in increasing certainty-equivalent revenue or reducing cumulative water use.

Date: 2008
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