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Karen Brovold

Document Type

Thesis - University Access Only

Award Date

1997

Degree Name

Master of Science (MS)

Department / School

Economics

First Advisor

Bashir A. Qasmi

Abstract

Agricultural producers contend with risk in several aspects of their operations. Both production and price can vary from year to year, making net income unpredictable. In order to reduce income risk, a producer can use futures and options to market production. In this research, optimal hedge ratios have been computed on a county basis. The variance of yield, local cash prices and future's prices, and the correlations among these factors were taken into consideration in the computation of the optimal hedges. A producer's level of risk aversion is also considered, to give a range of optimal hedge ratios. Different marketing strategies were evaluated at the optimal hedge ratio levels for a sixteen year period (1979- 1995) to determine the effectiveness of the strategies when applied at the optimal hedge ratio levels. Three different marketing initiation times were considered, and optimal hedges were computed for each timing. One county from each region (Codington, Lake, and Hutchinson) was used for the evaluation. The range of hedge ratios resulting from the analysis give an indication of the diversity of conditions for corn production and marketing across Eastern South Dakota. It has been shown that average net income can be increased through the various marketing strategies [sic]. However, the effectiveness of the marketing strategies for reducing risk varies between regions.

Library of Congress Subject Headings

Corn -- South Dakota -- Marketing
Corn -- Prices -- South Dakota

Format

application/pdf

Publisher

South Dakota State University

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