"IRRATIONAL" PLANTING BEHAVIOR AS RATIONAL EXPECTATIONS OF GOVERNMENT SUPPORT

The paper outlines an approach to estimation of rational expectations acreage response model for US soybeans that explicitly takes into account government payments. Numerical methods are used to recompute the model equilibrium at each iteration of the log-likelihood optimization routine. Estimation results allow one to measure market distortion introduced by the government support programs.Production Economics,

Application of Copulas to Estimation of Joint Crop Yield Distributions

This paper presents a copula-based methodology for modeling joint yield distributions. Copulas have been used extensively in financial literature, but have not been widely used in agricultural economics and particularly risk management. The copula approach provides a powerful and flexible method to model multivariate distributions and thus go beyond joint normality, regressibility, and mean-variance criterion. Accurate estimation of joint distributions may help to improve the results in the area of risk management and insurance obtained under more limiting assumptions.Crop Production/Industries,

Application of Weather Derivatives in Multi-Period Risk Management

This work is a first attempt to analyze the effect of weather derivative availability on the risk management strategies in a multi-period setting, when crop activities take place twice a year. Rice production in Ecuador is used as a case study. Numerical solutions show farmers improve their well-being by reducing their risk exposure.Weather Derivatives, Risk Management, Multi-Period., Agribusiness, Agricultural Finance, Risk and Uncertainty, Q13, Q14,

Weather Derivatives as Risk Management Tool in Ecuador: A Case Study of Rice Production

This paper analyzes efficiency of weather derivatives as insurance instruments for rice in Ecuador. Weather derivatives were constructed for each county/season combination. Complicated weather models were estimated for the index, and a copula approach was used to get the probability distributions. We find Risk-reducing efficiency varies across county and season.agricultural risk management, index insurance, weather derivatives, copula approach, rice production, Agribusiness, Crop Production/Industries, Risk and Uncertainty, Q14, Q59,

The Shape of the Optimal Hedge Ratio: Modeling Joint Spot-Futures Prices using an Empirical Copula-GARCH Model

Commodity cash and futures prices have been rising steadily since 2006. As evidenced by the April 2008 Commodity Futures Trading Commission Agricultural Forum, there is much concern among traditional futures and options market participants that the usefulness of commodity derivatives has been compromised. When basis risk is particularly high, dynamic hedging methods may be helpful despite their complexity and higher transaction costs. To assess the potential benefits of dynamic hedging in volatile times, this paper proposes a novel, empirical copula-based method to estimate GARCH models and to compute time-varying hedge ratios. This approach allows a nonlinear, asymmetric dependence structure between cash and futures prices. The paper addresses four principal questions: (1) Does the empirical copula-GARCH method overcome traditional limitations of dynamic hedging methods? (2) How does the empirical copula- GARCH hedging approach perform, for storable agricultural commodities, compared with traditional GARCH and Minimum Variance (static) hedging methods? (3) Is dynamic hedging more or less effective in the post-2006 biofuels expansion time period? (4) How sensitive is the ranking of methods to the hedging effectiveness criterion used? Preliminary findings suggest that the empirical copula-GARCH approach leads to superior hedging effectiveness based on some, but not all, risk criteria.Agricultural Finance,

Applications of copulas to Analysis of Efficiency of Weather Derivatives as Primary Crop Insurance Instruments

Risk and Uncertainty,

Phase-space structures in quantum-plasma wave turbulence

The quasilinear theory of the Wigner-Poisson system in one spatial dimension is examined. Conservation laws and properties of the stationary solutions are determined. Quantum effects are shown to manifest themselves in transient periodic oscillations of the averaged Wigner function in velocity space. The quantum quasilinear theory is checked against numerical simulations of the bump-on-tail and the two-stream instabilities. The predicted wavelength of the oscillations in velocity space agrees well with the numerical results

RAINFALL INSURANCE FOR MIDWEST CROP PRODUCTION

The paper discusses a methodology for design and pricing of index insurance contracts for crop production. The methodology heavily relies on establishing a relationship between the index and yields in order to evaluate the contract performance in hedging farmers' risk. However, analysis of yield/rainfall data series for Iowa corn and Kansas wheat fail to produce a reliable and meaningful relationship which can be used uniformly across several counties and/or crop producing districts. Further research is needed as to applicability of rainfall insurance to specific crop/region combinations.Crop Production/Industries, Risk and Uncertainty,

Risk-Reducing Effectiveness of Revenue versus Yield Insurance in the Presence of Government Payments

Government farm support programs such as Loan Deficiency Payments (LDP) and Counter-Cyclical Payments (CCP) have payoff structures that effectively make them costless price insurance instruments. A combination of these payments with yield insurance may provide a viable alternative to revenue insurance. This paper finds that, contrary to expectations, the revenue product analyzed is uniformly superior to yield insurance under both current (2002) and proposed (2008) Farm Bill structures of government payments. Given minor adjustments, however, yield insurance combined with government payments can provide more effective risk management than revenue insurance in production areas with low yield–price correlation.copulas, crop insurance, farm bill, government payments, Agribusiness, Agricultural and Food Policy, Crop Production/Industries, Q14, Q18,

Designing Rainfall Insurance Contracts for Pasture, Rangeland, and Forage

In the paper, preliminary results of the analysis of potential use of climate forecast information in designing rainfall index insurance in the southeastern region of the U.S. are reported. Joint distributions of bi-monthly rainfall and El Nino Southern Oscillation (ENSO) indexes are estimated using copula analysis of historical data. The risk reducing effectiveness of introducing premiums conditional on ENSO forecast is evaluated. The results indicate some dependence of the downward volatility of rainfall on the lagged ENSO (forecast) index, particularly in the coastal areas and in the late winter and spring.rainfall index insurance, ENSO, copulas, Agricultural Finance, Research Methods/ Statistical Methods, Risk and Uncertainty, Q14, Q54,