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Mitigating Cotton Revenue Risk Through Irrigation, Insurance, and Hedging

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  • Barham, E. Hart Bise
  • Robinson, John R.C.
  • Richardson, James W.
  • Rister, M. Edward

Abstract

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.

Suggested Citation

  • Barham, E. Hart Bise & Robinson, John R.C. & Richardson, James W. & Rister, M. Edward, 2011. "Mitigating Cotton Revenue Risk Through Irrigation, Insurance, and Hedging," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 43(4), pages 1-12, November.
    • Handle: RePEc:ags:joaaec:117946
    DOI: 10.22004/ag.econ.117946
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    8. Boyer, Christopher M. & Lambert, Dayton M. & Larson, James A. & Tyler, Donald, 2017. "Investment Analysis of Long-term Cover Crops and Tillage Systems on Cotton Production," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258525, Agricultural and Applied Economics Association.
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    More about this item

    Keywords

    Farm Management; Risk and Uncertainty;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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