Readings

Risks and Risk Management Strategies
Government Policy and Risk Management
Federal Crop Insurance
Farm Commodity Programs and Risk Management
Links 

Risks and Risk Management Strategies 

Managing Risk in Farming: Concepts, Research, and Analysis

Comprehensive assessment of risk in agriculture, risk management strategies available to farmers, and the effectiveness of various risk management strategies (March 1999).

Managing Farm Risk: Issues and Strategies

A compilation of articles from Agricultural Outlook magazine covers topics such as farmers' views of risk, the effectiveness of various risk management strategies, commodity price variability, and tax-deferred savings accounts for farmers (February 2000).

"Agricultural Contracting: Trading Autonomy for Risk Reduction"

The share of production under contract grew from 11 percent in 1969 to 39 percent in 2003. For farm operators, contracts provide benefits from reduced risks, but also result in loss of managerial control and reduced autonomy (Amber Waves, February 2006). For the full report, see:

Agricultural Contracting Update, 2005

A growing share of U.S. farm production is produced and sold under agricultural contracts. Contracts are far more likely to be used on large farms than on small ones. Marketing and production contracts covered 41 percent of the value of U.S. agricultural production in 2005, up from 39 percent in 2003 and 36 percent in 2001 (April 2008).

Agricultural Boom and Bust: Will History Repeat in the 1990s?

Farm incomes, prices, exports, land values, and interest rates show both similarities and differences from earlier periods of downturn in the farm economy (April 1999).

Risk Management Tools in Europe: Agricultural Insurance, Futures, and Options

A variety of agricultural insurance products with different levels of government support are available to farmers in Europe, reflecting the variety of crops grown and growing conditions in various countries. Changes in economic and agricultural policies in Europe over the past 10 to 15 years appear to have created conditions conductive to the development of futures and options markets (February 2004, see link below).

Determinants of Endogenous Price Risk in Corn and Wheat Futures Markets

Stocks-to-use ratios, futures market activity, and other factors affect price variability for corn and wheat futures contracts (August 2000).

Forward Contracting of Inputs: A Farm-Level Analysis

Use of output marketing and production contracts, managerial ability, regional location, farm size, and specialization in cash grain production are all correlated with greater forward contracting of inputs among farmers (November 1999).

Characteristics and Risk Management Needs of Limited-Resource and Socially Disadvantaged Farmers

This group of farmers tends to specialize more in livestock production, which is not covered by federally subsidized insurance and is eligible for few other government supports (April 1997).

Government Policy and Programs for Risk Management 

"Distributional and Risk Reduction Effects of Commodity Revenue Program Design," Review of Agricultural Economics, Vol. 30, No. 3, Fall 2008, pp. 543-53.   

Whole-Farm Approaches to a Safety Net

"Whole-farm revenue" programs have been proposed as a new form of income stabilization that would be available to all U.S. farms. This report looks at the risk management potential for such programs, which are not linked to production of particular commodities, and the obstacles to implementing such an approach (June 2006).

"Why Hasn't Crop Insurance Eliminated Disaster Assistance?"

Since the early 1980s, the U.S. Government has promoted crop insurance as a replacement for disaster payments as the primary form of risk management aid for farmers. Despite increased participation in crop insurance, ad hoc disaster assistance packages have continued to be enacted. This article discusses the government costs of crop insurance and how participation varies by type of farm and region (Amber Waves, June 2005).

A Safety Net for Farm Households

This report, comparing the benefits of four different farm assistance programs, finds that distribution of benefits varies widely across programs (October 2000).

The Agricultural Risk Protection Act of 2000 (May 2000). Text of the legislation.   

Risk, Government Programs, and the Environment

Private and public tools used to manage financial risk in agriculture may influence farmers' production decisions. These decisions, in turn, can influence environmental quality. This technical bulletin summarizes research and provides some perspective on private and public attempts to cope with financial risks and their environmental consequences (March 2004).

The Value of Plant Disease Early-Warning Systems: A Case Study of USDA's Soybean Rust Coordinated Framework

This report examines USDA's system to provide real-time, county-level forecasts of soybean rust in the United States. The information provided by Federal, State, industry, and academic partners is estimated to have increased U.S. soybean producers' profits by between $11 million and $299 million in 2005, or between 16 cents and $4.12 per acre depending on assumptions, especially those concerning the accuracy of rust infection forecasts (April 2006).

Federal Crop Insurance

"Managing Risk With Revenue Insurance"

Crop revenue insurance offers farmers a way to manage revenue variability that results from yield and price risks. Commodity-level revenue insurance, particularly for corn, soybeans, and wheat, has become a major part of the subsidized Federal crop insurance program. Whole-farm revenue insurance, based on combined revenue from all commodities produced on a farm, is a more broad-based approach, but is difficult to administer (Amber Waves, May 2007).

Production and Price Impacts of U.S. Crop Insurance Programs

Subsidized crop insurance results in relatively small increases in crop plantings, with the increase concentrated in the Plains states. Although planted acreage rises for all insured crops, wheat and upland cotton account for three-fourths of the expansion (December 2001).

An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program

This analysis focuses on corn and soybean production in the Corn Belt and wheat and barley production in the Upper Great Plains. The results confirm that increased participation in insurance programs provokes statistically significant acreage responses in some cases, though the response is very modest in every case (November 2004).

Asymmetric Information in the Market for Yield and Revenue Insurance

Differences in yield and revenue risk help explain farmers' choice of insurance product or coverage level (April 2001).

U.S. Crop Insurance: Premiums, Subsidies and Participation

How have producers responded to increased premium subsidies, a prominent feature of the U.S. crop insurance program since the early 1980s, and expansion of insurance coverage choices? Premium discounts were added to existing premium subsidies in 1999 and again in 2000, and the Agricultural Risk Protection Act of 2000 revised subsidy rates and increased government funding of premium subsidies for 2001-05 (December 2001).

Economic Analysis of the Standard Reinsurance Agreement

The paper outlines provisions of the SRA and analyzes how the SRA affects returns from underwriting crop insurance (Fall 2004).

Private Crop Insurers and the Reinsurance Fund Allocation Decision

This research investigates the strategic behavior of private crop insurance firms reinsured by USDA through the Standard Reinsurance Agreement (SRA). A simulation model of the SRA is used to compare the post-SRA returns of actual firm allocations to two alternative allocation strategies based on aggregate models and a policy-level econometric forecasting model (August 2007).

Farm Commodity Programs and Risk Management

"New Market Realities Affect Crop Program Choices"

Higher crop prices mean increased amounts of insurance under the Federal crop insurance program but reduced likelihood of commodity program payments based on fixed target prices. The new Average Crop Revenue Election (ACRE) program offers revenue protection based on recent market prices, but participating farmers must forgo some benefits of traditional commodity programs (Amber Waves, November 2008).

Forecasting the Counter-Cyclical Payment Rate for U.S. Corn: An Application of the Futures Price Forecasting Model

This report provides background information on the model for corn, its data requirements, the forecast procedure, and forecast results for crop years 2003/04 and 2004/05 (January 2005). The Excel spreadsheet models for corn, soybeans, and wheat are available at Season-Average Price Forecasts.

Valuing Counter-Cyclical Payments: Implications for Producer Risk Management and Program Administration

This study illustrates an improved method for estimating counter-cyclical payment rates by accounting for the variability in market price forecast errors. Forecasters and producers can use the model to calculate the probability of having to repay advanced counter-cyclical payments (February 2007).

Links 

Federal Agencies

USDA Risk Management Agency. Extensive information on crop and revenue insurance programs, and educational materials on risk management.

USDA Farm Service Agency. Information on emergency assistance and loan deficiency payment programs for farmers.

USDA, National Agricultural Library, National Agricultural Library Digital Repository (NALDR). Online browsing of historical ERS Agricultural Economic Reports and Agriculture Information Bulletins.

Weekly Weather and Crop Bulletin. Reports on current growing conditions and crop progress from USDA and the National Oceanic and Atmospheric Administration (NOAA).

Commodity Futures Trading Commission. Information on futures markets and their regulation; educational materials and links to commodity exchange websites.  

University Sources 

Ag Risk Education Library. Online source of educational and research materials related to risk management from the University of Minnesota Extension Service. 

Northeast Extension Risk Management Education Center. Risk management education information and contacts for States in the Northeast region. 

North Central Extension Risk Management Education Center. Risk management educational materials and university contacts for States in the North Central region.

Pacific Northwest Risk Management Education Project. Risk management educational materials and university contacts for States in the Pacific Northwest region.

Southeast Risk Management Education. Risk management educational materials and university contacts for States in the Southeast region.

Western Risk Management Library. Risk management educational materials and university contacts for States in the Western region.

Farmdoc. Risk management information provided through the University of Illinois at Urbana-Champaign. 

Ag Manager, Crops: Insurance and Risk. Educational materials from the Department of Agricultural Economics at Kansas State University. 

Crop Marketing and Risk Management. Risk management information provided through North Dakota State University Extension Service.

Financial and Risk Management Assistance. Educational materials from the Department of Agricultural Economics at Texas A&M University.

Risk Management Programs in Wisconsin. Risk management information provided through the University of Wisconsin Extension Service.

Iowa State University Extension Service. Links to bulletins on marketing and management topics, including crop insurance.