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Mitigating Cotton Revenue Risk Through Irrigation, Insurance,and Hedging

Published online by Cambridge University Press:  26 January 2015

E. Hart Bise Barham ,
John R.C. Robinson ,
James W. Richardson  and
M. Edward Rister
E. Hart Bise Barham
Affiliation:
Doane Advisory Services, St. Louis, Missouri
John R.C. Robinson
Affiliation:
Department of Agricultural Economics at Texas A&M University, College Station, Texas
James W. Richardson
Affiliation:
Department of Agricultural Economics at Texas A&M University, College Station, Texas
M. Edward Rister
Affiliation:
Department of Agricultural Economics at Texas A&M University, College Station, Texas
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Abstract

This study focuses on managing cotton production and marketing risks usingcombinations of irrigation levels, put options (as price insurance), andcrop insurance. Stochastic cotton yields and prices are used to simulate awhole-farm financial statement for a 1,000 acre furrow-irrigated cotton farmin the Texas Lower Rio Grande Valley under 16 combinations of riskmanagement strategies. Analyses for risk-averse decision makers indicatethat multiple irrigations are preferred. The benefits to purchasing putoptions increase with yields, as they are more beneficial when higher yieldsare expected from applying more irrigation applications. Crop insurance isstrongly preferred at lower irrigation levels.

Keywords

cottoncrop insuranceirrigationoptionsputsrisksimulationstochastic efficiency with respect to a functionD81Q12Q15
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 43 , Issue 4 , November 2011 , pp. 529 - 540
Copyright
Copyright © Southern Agricultural Economics Association 2011

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