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 Keywords
- Dairy producers
- Risk Management Strategies
- Target Price
- Moving Averages
Date of Defense 2004-12-15 Availability unrestricted AbstractThe 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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