Cameron Thraen | The Ohio State University (original) (raw)
Papers by Cameron Thraen
We examine the potential for currently proposed milk income over feed cost margin protection prog... more We examine the potential for currently proposed milk income over feed cost margin protection programs to displace dairy farmer use of private milk price risk management tools. Milk and feed price volatility have increased in recent years providing incentive to use risk management contracts. Using a mean-variance framework, we derive optimal farm hedge ratios with and without the subsidized government margin protection program. We find that the government program is likely to substitute for private risk management. However, the potential exists for the introduction of a margin financial instrument that would allow farmers to monetize the subsidized margin protection. This instrument could bring private hedgers back to the market. The U.S. federal government has a long history of active involvement in dairy markets with the purpose of supporting farm milk price. During the last decade, rising cost of production and expanding export markets have pushed farm milk prices higher than the government imposed price floor, while dairy producer profit margins have struggled. In particular, significantly higher feed prices have made the effective milk price floor ($9.90/cwt) largely irrelevant. These events in have resulted in the growing use of market based risk management tools by dairy farmers while encouraging interest in replacing government based price support with margin support. Past government dairy policies focused solely on supporting milk price. However, recent developments such as Livestock Gross Margin Insurance for Dairy Cattle (LGM) have begun to recognize the effectiveness of providing more complete protection encompassing both the milk price and feed price in the form of income-over-feed-cost (IOFC) margin insurance. 1 In response to calls for a new catastrophic risk insurance following the devastating farm financial year of 2009, consensus emerged among dairy farmers, processors, and elected representatives that a new federal dairy safety program should focus on establishing some type of IOFC margin 1 The LGM insurance product is a quasi public-private risk mitigation tool, sold through federal crop insurance companies and underwritten by the USDA Risk Management Agency currently provides an Asian basket type IOFC product to U.S. dairy farmers.
We request all readers, electronic media and others follow our citation guidelines when re-postin... more We request all readers, electronic media and others follow our citation guidelines when re-posting articles from farmdoc daily. Guidelines are available here. The farmdoc daily website falls under University of Illinois copyright and intellectual property rights.
farm-bill-key-factors-to-consider-ca-fed-milkmarketing-order.html Key Findings The 2014 Farm Bi... more farm-bill-key-factors-to-consider-ca-fed-milkmarketing-order.html Key Findings The 2014 Farm Bill permits California producers to keep some form of their unique quota system if a Federal Milk Marketing Order is adopted. The value of the California quota statewide is estimated to exceed 1billiondollarsandentitlesCaliforniaproducerstoasmuchas1 billion dollars and entitles California producers to as much as 1billiondollarsandentitlesCaliforniaproducerstoasmuchas1.70 per hundredweight in additional milk price revenue. Any gains in farm level milk prices due to the adoption of Federal Order classified prices in California would be dependent on the market-wide utilization of milk and may be offset if high value milk is consistently de-pooled. Current California state order pricing rules contribute to California's competitive position in the national cheese market. If Federal Milk Marketing Order provisions are adopted in California higher milk prices paid by California cheese makers may make them less competitive along the supply chain and could provide long-run incentives to shift processing capacity away from cheese into other dairy ingredient sectors.
We request all readers, electronic media and others follow our citation guidelines when re-postin... more We request all readers, electronic media and others follow our citation guidelines when re-posting articles from farmdoc daily. Guidelines are available here. The farmdoc daily website falls under University of Illinois copyright and intellectual property rights.
Cluster analysis can be used to objectively delineate economic entities. But the determination of... more Cluster analysis can be used to objectively delineate economic entities. But the determination of the optimum number of clusters to be used in an analysis is generally left primarily to the discretion of the researcher. This report gives an example of how the F test and the Tukey D statistic may be applied in cluster analysis to reduce the subjectivity in determining an optimum number of clusters.
In this analysis we compare the total expected government outlays and distribution of benefits un... more In this analysis we compare the total expected government outlays and distribution of benefits under newly proposed dairy margin insurance programs to those under existing counter-cyclical payment programs. We combine simulation and structural modeling techniques to forecast milk price and dairy income-over-feed-cost margins. Using the price forecasts we employ Monte-Carlo experiments to evaluate the total expected government outlays for a sample of 5000 representative farms given a constant relative risk aversion utility framework. We find that expected outlays favor large farm operations and are an order of magnitude higher than those under existing programs. Under the current policy framework (MILC), farms with less than 100 cows (76% of farms) account for 42% of net payments and farms over 1000 cows (2% of farms) account for 6% of net payments. Under the new policy regime farms with fewer than 100 cows will get 17-21% of net program benefits, and farms over 1000 cows will get 36...
In the period leading up to the start of the Margin Protection Program for Dairy Producers (MPP-D... more In the period leading up to the start of the Margin Protection Program for Dairy Producers (MPP-Dairy), a survey was undertaken to assess dairy farmer knowledge, attitudes, impressions and expected participation decisions. All surveys were collected in July and August 2014. There are six main conclusions of the survey. First, prior to the announcement of USDA rules regarding MPP-Dairy, most dairy producers felt they had ‘some knowledge’ of the program, with close to 30 percent declaring ‘no knowledge’ about the program. Second, about thirty percent of respondents had somewhat or very favorable impressions of MPP-Dairy while similar percent had somewhat or very unfavorable. Top four concerns about the program were too much government involvement, program complexity, lack of supply management and fear that the program would distort market signals to farmers. Third, close to 40 percent of producers indicated they were leaning towards registering for MPP-Dairy, while 30 percent were lea...
Dairy farms confront unique risks from weather conditions. Hot and humid weather induces heat str... more Dairy farms confront unique risks from weather conditions. Hot and humid weather induces heat stress, which brings a series of risks to dairy farm operations including reductions in milk production and pregnancy rate and increases in cull rate and death rate. Traditional heat abatement technologies control the environment through ventilation, misting or evaporative cooling. Adoption of abatement equipment, however, is hindered by its high initial cost and possibly long payback period, especially for smalland medium-scale firms. Moreover, although the abatement equipment is only seasonally useful, it is fixed asset whose price rises with efficacy. Weather derivatives provide an alternative method of risk management for dairy producers. Instead of reducing production losses, weather derivatives make payments based upon observed weather conditions over a period of time so that they offer the potential to offset profit losses caused by adverse weather events. Chapter 2 tests the risk management value of weather derivatives acting as a substitute for traditional abatement technologies within a utility maximization framework. The results suggest that weather derivatives offer an opportunity to improve the efficient portfolio frontier, and simultaneously using weather derivatives and abatement equipment is more favorable than using each of them alone. Previous research has identified the problem of basis risk in weather derivatives (Turvey, 2001; Vedenov and Miranda, 2001). Little theoretical or empirical work
North Central Journal of Agricultural Economics, 1987
Journal of Rural Studies, 1988
... In: TL Napier, D. Scott, KW Easter and R. Supalla, Editors, Water Resources Research: Problem... more ... In: TL Napier, D. Scott, KW Easter and R. Supalla, Editors, Water Resources Research: Problems and Potentials for Agriculture and Rural Communities, Soil Conservation Society of America Press, Ankeny, IO (1983), pp. 36–62. Christensen and Norris, 1983. ...
Journal of Agricultural & Food Industrial Organization, 2013
Review of Agricultural Economics, 1994
A rapidly-growing literature on rational expectation modeling and testing is found in agricultura... more A rapidly-growing literature on rational expectation modeling and testing is found in agricultural economics. The reviewed studies do not offer a consensus regarding the verification or falsification of the rational expectation hypothesis in agricultural markets. Small sample sizes and the low power of statistical tests in the presence of alternative expectation hypotheses contribute to the variability in conclusions. An additional and confounding source of the variability is specification searching. With a wide variability in specifications, divergent results are to be expected. Despite the lack of consensus, rational expectations modeling and testing has improved our knowledge of both expectation formation in agricultural markets, and the processes of agricultural market equilibrium and price determination.
... Insurance Company, Na-tional lnstitute for Farm Safety, and the Samuel Frantz family; data co... more ... Insurance Company, Na-tional lnstitute for Farm Safety, and the Samuel Frantz family; data collection help from Ohio Cooperative Extension Service staff; and the secretarial support of Lyndal K. Napier. ... Thus, future theo-retical modeling should focus on risk orien-tation. ...
Southern Journal of Agricultural Economics, 1987
Dairy producers operating in the U.S. have been protected against market price variability by the... more Dairy producers operating in the U.S. have been protected against market price variability by the federal price support program for over 35 years. During the late 1970s tax outlays to operate this program grew at a rapid rate. While many authors have addressed the economic implications of the existing dairy price support program, few have explicitly considered the relationship between risk aversion, capital investment, milk production, and support price policy in this process. This paper considers the role of uncertainty and risk-averse behavior and suggests that these elements are crucial to an economic analysis of the current program and future dairy policy issues.
... More emphasis should be placed on topographic factors because slope is a consideration in the... more ... More emphasis should be placed on topographic factors because slope is a consideration in the adoption of conservation tillage practices ... y = o.32X5 - 0.1 2X, + 0.- 092X7 + 0.07~~ + 0.07~~ (84.0) (15.1) (7.0) (6.2) (5.0) - R2 = 0.195 y = o.17Xe + o.09X,o + O.ogX, - 0.08x11 + 0.07 ...
We examine the potential for currently proposed milk income over feed cost margin protection prog... more We examine the potential for currently proposed milk income over feed cost margin protection programs to displace dairy farmer use of private milk price risk management tools. Milk and feed price volatility have increased in recent years providing incentive to use risk management contracts. Using a mean-variance framework, we derive optimal farm hedge ratios with and without the subsidized government margin protection program. We find that the government program is likely to substitute for private risk management. However, the potential exists for the introduction of a margin financial instrument that would allow farmers to monetize the subsidized margin protection. This instrument could bring private hedgers back to the market. The U.S. federal government has a long history of active involvement in dairy markets with the purpose of supporting farm milk price. During the last decade, rising cost of production and expanding export markets have pushed farm milk prices higher than the government imposed price floor, while dairy producer profit margins have struggled. In particular, significantly higher feed prices have made the effective milk price floor ($9.90/cwt) largely irrelevant. These events in have resulted in the growing use of market based risk management tools by dairy farmers while encouraging interest in replacing government based price support with margin support. Past government dairy policies focused solely on supporting milk price. However, recent developments such as Livestock Gross Margin Insurance for Dairy Cattle (LGM) have begun to recognize the effectiveness of providing more complete protection encompassing both the milk price and feed price in the form of income-over-feed-cost (IOFC) margin insurance. 1 In response to calls for a new catastrophic risk insurance following the devastating farm financial year of 2009, consensus emerged among dairy farmers, processors, and elected representatives that a new federal dairy safety program should focus on establishing some type of IOFC margin 1 The LGM insurance product is a quasi public-private risk mitigation tool, sold through federal crop insurance companies and underwritten by the USDA Risk Management Agency currently provides an Asian basket type IOFC product to U.S. dairy farmers.
We request all readers, electronic media and others follow our citation guidelines when re-postin... more We request all readers, electronic media and others follow our citation guidelines when re-posting articles from farmdoc daily. Guidelines are available here. The farmdoc daily website falls under University of Illinois copyright and intellectual property rights.
farm-bill-key-factors-to-consider-ca-fed-milkmarketing-order.html Key Findings The 2014 Farm Bi... more farm-bill-key-factors-to-consider-ca-fed-milkmarketing-order.html Key Findings The 2014 Farm Bill permits California producers to keep some form of their unique quota system if a Federal Milk Marketing Order is adopted. The value of the California quota statewide is estimated to exceed 1billiondollarsandentitlesCaliforniaproducerstoasmuchas1 billion dollars and entitles California producers to as much as 1billiondollarsandentitlesCaliforniaproducerstoasmuchas1.70 per hundredweight in additional milk price revenue. Any gains in farm level milk prices due to the adoption of Federal Order classified prices in California would be dependent on the market-wide utilization of milk and may be offset if high value milk is consistently de-pooled. Current California state order pricing rules contribute to California's competitive position in the national cheese market. If Federal Milk Marketing Order provisions are adopted in California higher milk prices paid by California cheese makers may make them less competitive along the supply chain and could provide long-run incentives to shift processing capacity away from cheese into other dairy ingredient sectors.
We request all readers, electronic media and others follow our citation guidelines when re-postin... more We request all readers, electronic media and others follow our citation guidelines when re-posting articles from farmdoc daily. Guidelines are available here. The farmdoc daily website falls under University of Illinois copyright and intellectual property rights.
Cluster analysis can be used to objectively delineate economic entities. But the determination of... more Cluster analysis can be used to objectively delineate economic entities. But the determination of the optimum number of clusters to be used in an analysis is generally left primarily to the discretion of the researcher. This report gives an example of how the F test and the Tukey D statistic may be applied in cluster analysis to reduce the subjectivity in determining an optimum number of clusters.
In this analysis we compare the total expected government outlays and distribution of benefits un... more In this analysis we compare the total expected government outlays and distribution of benefits under newly proposed dairy margin insurance programs to those under existing counter-cyclical payment programs. We combine simulation and structural modeling techniques to forecast milk price and dairy income-over-feed-cost margins. Using the price forecasts we employ Monte-Carlo experiments to evaluate the total expected government outlays for a sample of 5000 representative farms given a constant relative risk aversion utility framework. We find that expected outlays favor large farm operations and are an order of magnitude higher than those under existing programs. Under the current policy framework (MILC), farms with less than 100 cows (76% of farms) account for 42% of net payments and farms over 1000 cows (2% of farms) account for 6% of net payments. Under the new policy regime farms with fewer than 100 cows will get 17-21% of net program benefits, and farms over 1000 cows will get 36...
In the period leading up to the start of the Margin Protection Program for Dairy Producers (MPP-D... more In the period leading up to the start of the Margin Protection Program for Dairy Producers (MPP-Dairy), a survey was undertaken to assess dairy farmer knowledge, attitudes, impressions and expected participation decisions. All surveys were collected in July and August 2014. There are six main conclusions of the survey. First, prior to the announcement of USDA rules regarding MPP-Dairy, most dairy producers felt they had ‘some knowledge’ of the program, with close to 30 percent declaring ‘no knowledge’ about the program. Second, about thirty percent of respondents had somewhat or very favorable impressions of MPP-Dairy while similar percent had somewhat or very unfavorable. Top four concerns about the program were too much government involvement, program complexity, lack of supply management and fear that the program would distort market signals to farmers. Third, close to 40 percent of producers indicated they were leaning towards registering for MPP-Dairy, while 30 percent were lea...
Dairy farms confront unique risks from weather conditions. Hot and humid weather induces heat str... more Dairy farms confront unique risks from weather conditions. Hot and humid weather induces heat stress, which brings a series of risks to dairy farm operations including reductions in milk production and pregnancy rate and increases in cull rate and death rate. Traditional heat abatement technologies control the environment through ventilation, misting or evaporative cooling. Adoption of abatement equipment, however, is hindered by its high initial cost and possibly long payback period, especially for smalland medium-scale firms. Moreover, although the abatement equipment is only seasonally useful, it is fixed asset whose price rises with efficacy. Weather derivatives provide an alternative method of risk management for dairy producers. Instead of reducing production losses, weather derivatives make payments based upon observed weather conditions over a period of time so that they offer the potential to offset profit losses caused by adverse weather events. Chapter 2 tests the risk management value of weather derivatives acting as a substitute for traditional abatement technologies within a utility maximization framework. The results suggest that weather derivatives offer an opportunity to improve the efficient portfolio frontier, and simultaneously using weather derivatives and abatement equipment is more favorable than using each of them alone. Previous research has identified the problem of basis risk in weather derivatives (Turvey, 2001; Vedenov and Miranda, 2001). Little theoretical or empirical work
North Central Journal of Agricultural Economics, 1987
Journal of Rural Studies, 1988
... In: TL Napier, D. Scott, KW Easter and R. Supalla, Editors, Water Resources Research: Problem... more ... In: TL Napier, D. Scott, KW Easter and R. Supalla, Editors, Water Resources Research: Problems and Potentials for Agriculture and Rural Communities, Soil Conservation Society of America Press, Ankeny, IO (1983), pp. 36–62. Christensen and Norris, 1983. ...
Journal of Agricultural & Food Industrial Organization, 2013
Review of Agricultural Economics, 1994
A rapidly-growing literature on rational expectation modeling and testing is found in agricultura... more A rapidly-growing literature on rational expectation modeling and testing is found in agricultural economics. The reviewed studies do not offer a consensus regarding the verification or falsification of the rational expectation hypothesis in agricultural markets. Small sample sizes and the low power of statistical tests in the presence of alternative expectation hypotheses contribute to the variability in conclusions. An additional and confounding source of the variability is specification searching. With a wide variability in specifications, divergent results are to be expected. Despite the lack of consensus, rational expectations modeling and testing has improved our knowledge of both expectation formation in agricultural markets, and the processes of agricultural market equilibrium and price determination.
... Insurance Company, Na-tional lnstitute for Farm Safety, and the Samuel Frantz family; data co... more ... Insurance Company, Na-tional lnstitute for Farm Safety, and the Samuel Frantz family; data collection help from Ohio Cooperative Extension Service staff; and the secretarial support of Lyndal K. Napier. ... Thus, future theo-retical modeling should focus on risk orien-tation. ...
Southern Journal of Agricultural Economics, 1987
Dairy producers operating in the U.S. have been protected against market price variability by the... more Dairy producers operating in the U.S. have been protected against market price variability by the federal price support program for over 35 years. During the late 1970s tax outlays to operate this program grew at a rapid rate. While many authors have addressed the economic implications of the existing dairy price support program, few have explicitly considered the relationship between risk aversion, capital investment, milk production, and support price policy in this process. This paper considers the role of uncertainty and risk-averse behavior and suggests that these elements are crucial to an economic analysis of the current program and future dairy policy issues.
... More emphasis should be placed on topographic factors because slope is a consideration in the... more ... More emphasis should be placed on topographic factors because slope is a consideration in the adoption of conservation tillage practices ... y = o.32X5 - 0.1 2X, + 0.- 092X7 + 0.07~~ + 0.07~~ (84.0) (15.1) (7.0) (6.2) (5.0) - R2 = 0.195 y = o.17Xe + o.09X,o + O.ogX, - 0.08x11 + 0.07 ...