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Abstract
It has been long known that weather conditions are the main factor of
uncertainty in plant production. For this reason, an integrated system of risk
management in plant production is necessary today, in order to somewhat
compensate for the loss caused by weather risks. In the past, farmers have bought
insurance for protection against fluctuations in crop yields caused by weather risks.
Relatively new tools for risk management in plant production are weather
derivatives. Although weather derivatives show many advantages over traditional
insurance the market for these products is still relatively limited. Therefore it is
necessary to quantify the effect of risk reducing that can be achieved by using
weather derivatives on the example of selected farm in Germany. If the field of
production is close to the meteorological station, and if a high correlation between
weather indices and yield is assumed, then the effect of risk reducing is significant
(over 30 %).