Measuring the Financial Risks of New York Dairy Producers (original) (raw)
Related papers
2007
The major sources of variability in net farm income on New York dairy farms over the past 10 years are identified using Dairy Farm Business Summary records. The most important source of income variability is the fluctuation in milk prices, followed closely by year-to-year variation in the quantity of purchased feeds. These results suggest that forward pricing of milk and feed purchases may be effective risk reduction strategies. Since a few farms have large cull cow sales, probably due to disease or other production problems, new insurance products to insure against disease may be useful to dairy farmers. It appears that older farmers are more successful in engaging in activities that increase diversification and reduce the variability in reductions in farm income. The same is true for farmers who utilize milking parlors, use recombinant bovine somatotropin, have greater assets per cow, and have engaged in activities to earn income from off-farm sources.
Summary In this study, a model for measuring and designing appropriate risk management strategies for dairy farmers was developed in Tonya district of Trabzon province, Turkey. Probability distributions of milk price and yield are derived to expose business and financial risk faced by dairy farmers. After designing appropriate dairy risk management strategies, existing risk management strategies were compared by using second-degree stochastic dominance (SSD). The results show that the total risk of dairy farmers is 57 % and the possible loss is approximately 2000$. Business risk is 50 % while the other half is attributed to financial rigidities. Research results also suggest that the most appropriate risk management strategy is transferring risk in order to ensure sufficient returns to meet debt services and to operate expense commitments in the research area. Based on the SSD results, income diversification through obtaining off farm income is the best way to transfer risk and mark...
Risk Balancing Strategies in the Florida Dairy Industry: An Application of Conditional Value at Risk
2003
Legislation has prompted changes in milk price volatility. Milk price volatility impacts the producer's exposure to business risk which is compound by the firms financial risk. Financial risk is a function of the firms capital structure. In the short run it is difficult for the producer to significantly change the firms capital structure and therefore balance increased business risk with reduced financial risk. The producer can however reduce financial and business risk by using futures contracts to lock in a price for milk produced. The producer's risk preferences dictate the producer's hedge ratio. Using the return on equity as a profitability measure and the conditional value at risk as a risk measure the optimal hedge ratio is derived for various probabilities of negative returns on equity.
Impact of Risk within the Northern Ireland Dairy Sector
2010
This paper examines farmers' decision making under risk and uncertainty. In particular, the study identifies the type of risk preference (averse, neutral or seeking) and measures the magnitude of risk preference before and after the introduction of the Single Farm Payment (SFP). The analysis therefore provides an insight into the impact of this fundamental policy change on farmer risk behaviour. Furthermore, it examines agricultural production decision making under price uncertainty. Empirically, it evaluates the impact of risk and uncertainty using Farm Business Survey (FBS) data of NI dairy farms. Using an econometric approach (maximize expected utility), a comprehensive methodology is employed that enables price uncertainty and risk preference under the Common Agricultural Policy (CAP) to be analysed simultaneously. The methodology permits the testing of common risk aversion theoretical hypotheses, including Arrow's hypothesis on the effect of wealth on the measures of ri...
Dairy farmer use of price risk management tools
Journal of dairy science, 2012
Volatility in milk and feed prices can adversely affect dairy farm profitability. Many risk management tools are available for use by US dairy farmers. This research uses surveys of Michigan dairy farmers to examine the extent to which price risk management tools have been used, the farm and operator characteristics that explain the use of these tools, and reasons farmers have not used these tools. A 1999 survey was used to benchmark the degree to which dairy producers had used milk and feed price risk management instruments to compare with 2011 use rates. The surveys collected information about the farm characteristics such as herd size, farmland operated, business organization, and solvency position. Farm operator characteristics collected include age, education, and experience. Dairy farmer use of both milk and feed price risk management tools increased between 1999 and 2011. In 2011, herd size was positively related to the use of milk price risk management tools, whereas farms o...