ZONE-BASED GROUP RISK INSURANCE

Current country-based group crop insurance, i.e., Group Risk Plan (GRP), is not an effective risk-reducing tool in counties where natural conditions are different across the area. Using only the historical yield information, a statistical approach is developed to group farmers by their yield similarity rather than linking them based on their association with a particular county. The cases of Washington State wheat farms and Iowa corn farms are the focus of this investigation. Sub-county or cross-county zones (clusters) are identified, and each farm is classified into a cluster where individual farm identification remains unknown. To improve risk-management and cost effectiveness of the crop insurance instrument, we propose implementation of zone-based GRP as a substitute for county-based GRP, where homogeneous zones rather than county boundaries are used for indemnifying yield.Risk and Uncertainty,

IS CHINA'S AGRICULTURAL FUTURES MARKET EFFICIENT?

In this paper, we study the efficiency of the Chinese wheat and soybeans futures markets and assess the conditions in agricultural commodity futures and cash markets in China. Formal statistical tests are conducted through Johansen's cointegration approach to identify the long-term equilibrium relationship between futures and cash markets. Three different cash prices from Zhengzhou Grain Wholesale Market, Tianjin Grain Wholesale Market, and the national average wholesale price are used. The wheat futures price from China Zhengzhou Commodity Exchange and soybeans futures price from Dalian Commodity Exchange with different forecasting horizons ranging from one week to six months are also used. Results suggest that a long-term equilibrium relationship between the futures price and cash price for soybeans has been established. A weak short-term efficiency of the soybean futures market is revealed. The futures market for wheat is inefficient. The relative inefficient wheat market may be caused by over-speculation and government intervention, because wheat is the staple food in China and the government has more control over it than soybeans. Another reason is geographic proximities between the cash market in Tianjin and both the soybean production area and the futures market in Dalian.Marketing,

USING THE SPATIAL STATISTICS APPROACH TO ANALYZE YIELD RISK POOLING IN THE US

Risk theory tells us if an insurer can effectively pool a large number of individuals to reduce the total risk, he then can provide the insurance by charging a premium close to the actuarially fair rate. There is, however, a common belief that the risk can be effectively pooled only when the random loss is independent, so that crop insurance markets cannot survive without government subsidy because crop yields are not independent among growers. In this paper, we take a a spatial statistics approach to examine the effectiveness of risk pooling for crop insurance under correlation. We develop a method for evaluating the effectiveness of risk pooling under correlation and apply the method to three major crops in the US: wheat, soybeans and corn. The empirical study shows that yields for the three crops present zero or negative correlation when two counties are far apart, which complies with a weaker condition than independence, finite-range positive dependency. The results show that effective risk pooling is possible and reveal a high possibility of a private crop insurance market in the US.Risk and Uncertainty,

MARKET INTEGRATION TEST FOR PACIFIC EGG MARKETS

This paper uses of Johansen's multivariate cointegration test to test for egg market integration of six Pacific states, Washington, Idaho, Oregon, California, Nevada, and Arizona. We conclude that eggs from these states substitute for each other to some degree, and arbitrage possibilities through trade bind the egg prices. In addition, the Law of One Price (LOP), the case of perfect integration, is examined by testing the linear combination of cointegration vectors. Test results show that the LOP is not satisfied even though the egg markets in the six Pacific states are highly integrated. Arizona egg prices, California egg prices, and Washington egg prices play dominant roles on the Pacific egg market in the long run.Demand and Price Analysis, Livestock Production/Industries,

What Marketing Measures Can Organic Apple and Pear Growers Take to Increase Their Receipts?

Crop Production/Industries, Marketing,

Intertemporal Risk Management Decisions of Farmers under Preference, Market, and Policy Dynamics

This paper adapts a generalized expected utility (GEU) maximization model (Epstein and Zin, 1989 and 1991) to examine the intertemporal risk management of wheat producers in the Pacific Northwest. Optimization results based on simulated data indicate the feasibility of the GEU optimization as a modeling framework. It further extends the GEU model by incorporating a welfare measure, the certainty equivalent, to investigate the impacts of U.S. government programs and market institutions on farmers' risk management decisions and welfare. A comparison between the GEU and other expected utility models further implies GEU has the advantage of specifying farmers' intertemporal preferences separately and completely. Impact analysis results imply that farmers' optimal hedging is sensitive to changes in the preferences and the effects of these preference changes are intertwined. Target price and loan rate levels, offered by certain government payment programs, can lead to the substitution of government programs for hedging. The evaluation of current risk management tools shows both crop insurance and government payments can improve farmers' welfare significantly. Government payment programs have a greater effect on farmers' welfare than crop insurance and crop insurance outperforms hedging.generalized expected utility, risk management, multi-period production, dynamic optimization, intertemporal preference, market institution, government payments, Risk and Uncertainty, Q14, D9, C61,

Efficiency tests of agricultural commodity futures markets in China

The efficiency of the Chinese wheat and soybean futures markets is studied. Formal statistical tests were conducted based on Johansen’s cointegration approach for three different cashmarkets and six different futures forecasting horizons ranging from1 week to 4 months.The results suggest a long-termequilibrium relationship between the futures price and cash price for soybeans and weak short-term efficiency in the soybean futures market. The futures market for wheat is inefficient, which may be caused by overspeculation and government intervention.cointegration, futures market, price, soybean, wheat, Marketing, Risk and Uncertainty,

INTERTEMPORAL DECISIONS OF FARMERS RISK MANAGEMENT: A DYNAMIC OPTIMIZATION WITH GENERALIZED EXPECTED UTILITY

In this paper we attempt an intertemporal study of risk management decisions for wheat growers in the Pacific Northwest. We apply a generalized expected utility model (GEU) to examine the farmers optimal choices of hedging ratios and crop insurance coverage levels in the presence of government payment programs in a multi-period production environment. A stochastic trend model is used to identify the long-term time series patterns of annual wheat yields, cash prices, and futures prices from two counties in Washington. The fitted models are then used as the base for yield and price simulation over the next five years. The stochastic dynamic optimization problem is solved numerically based on simulated data. The optimal solutions indicate that the GEU model is feasible in modeling farmers intertemporal decisions regarding risk management. The comparison between GEU model and some commonly used expected utility models further implies the advantage of the GEU model in being flexible to specify farmers intertemporal preferences separately and completely.Crop Production/Industries, Risk and Uncertainty,

THE POSSIBILITY OF A PRIVATE CROP INSURANCE MARKET: THE THEORETICAL FOUNDATIONS

The theoretical foundation for risk pooling in insurance has heavily depend on the independence assumption of losses, which is severely violated in crop insurance. A weaker condition, asymptotic nonpositive correlation can also lead to risk pooling and is satisfied by yield losses. Therefore, private insurance and reinsurance markets may work.Risk and Uncertainty,

Food Safety and Demand: Consumer Preferences for Imported Pork in Urban China

China’s transition into a developed economy is driving changes in consumer preferences and demand for foods. The objective of this study is to assess and measure consumers’ preferences for and attitudes toward imported pork in urban China. Estimated logit models based on a consumer survey conducted in 2008 reveal that individuals’ age, shopping location, and food safety concerns significantly influence their willingness to pay for U.S. pork. Factors affecting purchasing behavior of Western-style pork cuts versus traditional Chinese cuts are also evaluated. Consumers’ food safety concerns were linked to a previous lean-meat additive scare and a lack of confidence in the Chinese food inspection system.Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Livestock Production/Industries,