Date of Graduation

8-2024

Document Type

Thesis

Degree Name

Master of Science in Agricultural Economics (MS)

Degree Level

Graduate

Department

Agricultural Economics and Agribusiness

Advisor/Mentor

Biram, Hunter D.

Committee Member

Connor, Hunter

Second Committee Member

Villanueva, Anastasio J.

Keywords

Crop insurance; Expected utility; Net indemnities; Optimal coverage; Risk management; Stochastic simulation

Abstract

Agricultural producers bear many risks, including production risks stemming from uncertainty in weather and pest pressure and price risks arising from market volatility. Federal Crop Insurance has become one of the most popular tools to manage these risks. While yield and revenue crop insurance tend to be the most popular production and price risk management tools provided by the government, participation in Margin Protection insurance lags far behind despite providing production, crop price, and input price risk protection. This study aims to uncover whether Margin Protection crop insurance is an effective risk management tool by estimating the optimal coverage level under crop price, input price, and yield uncertainty in Arkansas County. Monte Carlo simulation has been applied by leveraging a copula function to simulate margin losses across six correlated random variables consisting of county yields, commodity futures prices, and the prices of inputs used in determining margin guarantees under Margin Protection. The optimal coverage of 95% has shown the highest net indemnities and certainty equivalents which indicates that producers can benefit by leveraging the highest coverage level under Margin Protection. Findings from this work also have implications for the upcoming farm bill discussion as farm policy proposals are considered, including the potential for reintroducing a margin program in Title 1 of the farm bill.

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