Price Risk Management Strategies for Virginia Dairy Producers
The 1996 and 2002 Farm Bill changes in milk support price legislation deregulated the market and milk prices are more volatile than ever. The use of a mechanism to reduce farmers' exposure to volatile milk prices has therefore become essential. This study evaluates the impact of two hedging...
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| Format: | Dissertation |
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Virginia Tech
2014
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| Online Access: | http://hdl.handle.net/10919/37159 http://scholar.lib.vt.edu/theses/available/etd-12222004-124007/ |
| Summary: | The 1996 and 2002 Farm Bill changes in milk support price legislation
deregulated the market and milk prices are more volatile than ever. The use of a
mechanism to reduce farmers' exposure to volatile milk prices has therefore become
essential. This study evaluates the impact of two hedging strategies, one conservative and
the other an intermediate one (more sophisticated). Optimal parameters for the two
strategies are searched over a period of 5 years. Then, the performance, in terms of
increased profitability and reduced variation, is assessed and the best performer is chosen
and applied to an out-of-sample dataset.
With the in-sample data, both strategies generate higher mean monthly profits than
with the no-hedging option. Comparison of both strategies indicates that the intermediate
strategy outperforms the conservative one in terms of higher profitability and lower
variance. Out-of-sample results confirm the findings of the in-sample results. The
additional profits and the reduction in volatility can make the difference between keeping
a farm profitable and bankruptcy. === Master of Science |
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