Rankings of Risk Management Strategies Combining Crop Insurance Products and Marketing Positions
Chad E. Hart, Bruce A. Babcock
February 2001 [01-WP 267]
Hart, C.E. and B.A. Babcock. 2001. "Rankings of Risk Management Strategies Combining Crop Insurance Products and Marketing Positions." Working paper 01-WP 267. Center for Agricultural and Rural Development, Iowa State University.
Farmers can choose from a wide selection of crop insurance products and marketing strategies. Combinations of these risk management tools have varying effects on the user's risk environment. In this paper, the authors rank nine risk management strategies for their impacts on average returns, certainty equivalent returns, and risk premiums. The analysis is conducted using historical price and yield data for 1976 to 1999 in five Iowa counties. The results show the benefits of crop insurance in reducing revenue risk. Also, given that the producer will forward contract some of his or her crop, the combination of E-Markets' Decision Rules for Contracts (DRC) pricing tool and Crop Revenue Coverage (CRC) crop insurance receives the highest ranking.