Mitigating Cotton Revenue Risk Through Irrigation, Insurance, and Hedging

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.


Issue Date:
2011-11
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/117946
Published in:
Journal of Agricultural and Applied Economics, Volume 43, Number 4
Page range:
529-540
Total Pages:
12
JEL Codes:
D81; Q12; Q15




 Record created 2017-04-01, last modified 2017-08-26

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