Dr. Cory Walters
Dr. Kathleen Brooks
Date of this Version
Zimmerman, Kara. 2021. Impacts of Crop Insurance and Intra-Season Hedging on Long-Run Net Income Risk. University of Nebraska-Lincoln.
Each year producers must make risk management decisions early in the growing season when many variables are unknown. In this thesis we create an empirical model utilizing thirty years (1989-2018) of historical yield, cost, and daily price series data, to determine the optimal risk management strategy of crop insurance and an intra-season marketing plan that will both minimize net income risk and maximize average net income. The empirical model is taken a step further to include an out-of-sample year in order to test the robustness of empirical results to financially devastating events that have never been seen. We test the results with two different out-of-sample models utilizing two different yield and price scenarios. From the results, we find that the optimal marketing plan changes based on the location and practice (irrigated vs. non-irrigated) as well as the amount of hedging the producer decides to participate in before harvest. For example, at low levels of hedging greater emphasis is put on the insurance contract selected to affect financial outcomes, while at high levels of hedging, a plan that evenly hedges grain throughout the growing season minimized risk and returned the highest average net income.
Advisors: Cory Walters and Kathleen Brooks