Managing Risk in Farming: Concepts, Research, and Analysis

by Joy Harwood, Richard Heifner, Keith H. Coble, Janet Perry, and Agapi Somwaru

The risks confronted by grain and cotton farmers are of particular interest, given the changing role of the Government after passage of the 1996 Farm Act. With the shift toward less government intervention in the post-1996 Farm Act environment, a more sophisticated understanding of risk and risk management is important to help producers make better decisions in risky situations and to assist policymakers in assessing the effectiveness of different types of risk protection tools. In response, this report provides a rigorous, yet accessible, description of risk and risk management tools and strategies at the farm level. It also provides never-before-published data on farmers' assessments of the risks they face, their use of alternative risk management strategies, and the changes they would make if faced with financial difficulty. It also compares price risk across crops and time periods, and provides detailed information on yield variability.

Keywords: crop insurance, risk, diversification, futures contracts, leasing, leveraging, liquidity, livestock insurance, marketing contracts, options contracts, production contracts, revenue insurance, vertical integration

In this publication...

• Entire Report
• Frontmatter(Abstract, Table of Contents, Summary, Introduction)
• What Is Risk?
• Types of Risk Most Important to Producers
• Measuring Price and Yield Risk,
• How Farmers Manage Risk: Enterprise Diversification
• Vertical Integration
• Production Contracts
• Marketing Contracts
• Hedging in Futures
• Futures Options Contracts
• Maintaining Financial Reserves and Leveraging
• Liquidity
• Leasing Inputs and Hiring Custom Work
• Insuring Crop Yields and Crop Revenues
• Off-Farm Employment and Other Types of Off-Farm Income
• Other Ways of Managing Risk
• Farmers' Reported Use of Risk Management Strategies
• How Farmers Can Reduce Risk: Examples Using Hedging, Forward Contracting, Crop Insurance, and Revenue Insurance
• Some Practical Aspects of Farm Risk Management
• References
• Glossary
• Appendix 1: Techniques for Measuring Risk
• Appendix 2: Analytical Tools for Assessing the Effectiveness of Risk Management Strategies
• Appendix 3: Examples of Various Types of Crop and Revenue Insurance