Title page for ETD etd-12222004-124007

Type of Document Special Report
Author Andino, Alexandra Elizabeth
URN etd-12222004-124007
Title Price Risk Management Strategies for Virginia Dairy Producers
Degree Master of Science
Department Agricultural and Applied Economics
Advisory Committee
Advisor Name Title
Purcell, Wayne D. Committee Chair
Groover, Gordon E. Committee Member
Reaves, Dixie Watts Committee Member
  • Basis
  • Milk
  • Dairy producers
  • Risk Management Strategies
  • Target Price
  • Moving Averages
Date of Defense 2004-12-15
Availability unrestricted
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.

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