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Analysis of Price Risk Management Strategies in Dairy Farming Using Whole-Farm Simulations

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  • Neyhard, James
  • Tauer, Loren
  • Gloy, Brent

Abstract

Combinations of futures and options contracts on milk and feed were simulated to determine their influence on a representative dairy farm’s ability to meet cash flow requirements and reduce the variance of net income. Compared with the reference scenario of selling milk and procuring inputs on a monthly cash basis, the risk management activities did not result in a significant change in either the level or variance of net farm income. The results suggest that on average the current marketing procedure of monthly cash milk pricing and monthly feed purchases (and pricing) produces a strong built-in natural hedge for dairy farmers.

Suggested Citation

  • Neyhard, James & Tauer, Loren & Gloy, Brent, 2013. "Analysis of Price Risk Management Strategies in Dairy Farming Using Whole-Farm Simulations," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(2), pages 1-15, May.
    • Handle: RePEc:ags:joaaec:149131
    DOI: 10.22004/ag.econ.149131
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    1. Sigl, Lukas & Hirschauer, Norbert, 2024. "The hedging efficiency of wheat futures in various types of farms in Germany," SocArXiv pvq9t, Center for Open Science.
    2. Fernandez-Perez, Adrian & Frijns, Bart & Gafiatullina, Ilnara & Tourani-Rad, Alireza, 2022. "Profit margin hedging in the New Zealand dairy farming industry," Journal of Commodity Markets, Elsevier, vol. 26(C).
    3. Wolf, Christopher A. & Widmar, Nicole J. Olynk, 2014. "Adoption of Milk and Feed Forward Pricing Methods by Dairy Farmers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 46(4), pages 1-14, November.
    4. Waithira, Waweru Caroline, 2017. "An Analysis Of Risk Attitudes And Risk Management Strategies Among Dairy Farmers In Murang’A County, Kenya," Research Theses 276428, Collaborative Masters Program in Agricultural and Applied Economics.
    5. Waweru, Caroline Waithira & Nyikal, Rose & Busienei, John R, 2017. "An Analysis Of Risk Attitudes And Risk Management Strategies Among Dairy Farmers In Murang’A County, Kenya," Dissertations and Theses 271063, University of Nairobi, Department of Agricultural Economics.
    6. Sergei Schaub & Nadja El Benni, 2024. "How do price (risk) changes influence farmers’ preferences to reduce fertilizer application?," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 365-383, March.

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    More about this item

    Keywords

    Farm Management; Risk and Uncertainty;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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