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Abstract
While large feedlots commonly hedge corn and fed cattle prices, weather remains the largest
uncontrollable component of production risk. This research examines the economic losses to cattle
feeding associated with extreme weather. Profit losses are assessed using nonlinear regressions
that relate weather outcomes, based on the Comprehensive Climate Index (
Mader, Johnson, and
Gaughan
,
2010
), and their impact on production variables. Actuarially fair insurance premium
rates are derived for an insurance product designed to mitigate the potential cost of extreme
weather. Finally, we discuss additional issues associated with using weather-index insurance
products and insuring feedlot cattle against adverse weather.