Evaluating the Effectiveness of Price and Yield Risk Management Products in Reducing. Revenue Risk for Southeastern Crop Producers * Todd D.

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1 Evaluatng the Effectveness of Prce and Yeld Rsk Management Products n Reducng Revenue Rsk for Southeastern Crop Producers * Todd D. Davs ** Abstract A non-parametrc smulaton model ncorporatng prce and yeld rsk determned gross revenue less rsk management costs for corn, cotton, and soybeans produced wth and wthout rrgaton. Rsk management alternatves protectng prce rsk, yeld rsk, and combnatons of prce and yeld were smulated. Combnaton strateges provded the greatest revenue rsk reducton. * Selected Paper prepared for presentaton at the Southern Agrcultural Economcs Assocaton Annual Meetngs at Lttle Rock, Arkansas, February 5-9, ** Todd D. Davs s an Assstant Professor and Extenson Economst n the Department of Appled Economcs and Statstcs, Clemson Unversty, Clemson, SC Hs emal address s tddavs@clemson.edu. Copyrght 2005 by Todd D. Davs. All rghts reserved. Readers may make verbatm copes of ths document for non-commercal purposes by any means, provded ths copyrght notce appears on all such copes.

2 Evaluatng the Effectveness of Prce and Yeld Rsk Management Products n Reducng Revenue Rsk for Southeastern Crop Producers Rsk management s an mportant component of farm busness management. Ths s especally true for row-crop producers n the Southeast regon. An example of producton rsk n ths regon s the drought that occurred from Ths fve-year drought concded wth a perod of low commodty prces. Snce rsk management s such a crucal part of managng the farm busness, producers need to better understand the rsk-reducng capabltes of alternatve rsk management practces. Producers can choose to manage prce rsk by usng pre-harvest cash forward contracts, hedgng wth commodty futures, or by purchasng put optons. Yeld rsk can be managed through the use of actual producton hstory (APH) nsurance whch protects aganst yeld loss. Another rsk management product s Crop Revenue Coverage (CRC) nsurance whch guarantees an amount of revenue by provdng both prce and yeld rsk protecton. Evaluatng the effectveness of alternatve rsk management products can be a complcated process. The nsurance products can be purchased at sx dfferent coverage levels provdng varyng levels of protecton. Smlarly, prce rsk management strateges can be mplemented anytme before plantng or after plantng and before harvest. Producers may be overwhelmed by a seemngly nfnte number of rsk management combnatons. The objectve of ths study s to analyze the revenue rsk reducton provded by alternatve prce, yeld, and combnatons of prce and yeld rsk management products. Ths study smulates the per acre gross revenue less the cost of the rsk management practce for corn, cotton and soybeans produced wth and wthout rrgaton. The rsk management alternatves are ranked by the smulated mean gross revenue, the smulated mnmum gross revenue, and the gross revenue coeffcent of varaton for each crop and type of producton.

3 2 Methods A non-parametrc smulaton model s used to determne the per acre gross revenue, less rsk management costs, for alternatve pre-harvest prce rsk management practces, crop nsurance alternatves, and combnatons of marketng and nsurance. Snce the varable costs of producton are expected to be the same regardless of rsk management practce, only gross revenues are consdered. Ths model s based on a model developed by Prtchett et al. n a study of rsk management alternatves for an Indana corn and soybean farm. Cash and Cash Forward Contract Prces The smulated cash market prce at harvest and the sprngtme cash forward contract prce are determned from commodty futures prces and the hstorcal bass. The cash harvest-tme prce and cash forward contract (CFC) prces are defned n equaton 1 and equaton 2, respectvely. (1) (2) P P cash, harv fut, harv = cfc fut, sprng P = P + β + β cash, harv cash, sprng where fut harv P, and fut sprng P, represent the commodty futures prce at harvest and n the sprng, respectvely. Smlarly, the sprng, respectvely. β and cash, harv β represent the cash market bass at harvest and n cash, sprng Loan Defcency Payments Another component of prce rsk management s the avalablty of loan defcency payments whch are part of the 2002 Farm Bll (USDA FSA). Ths program provdes payments whenever the posted county prce s below the county s commodty loan rate. The loan defcency payments are stochastc and can vary greatly from year-to-year. The stochastc posted

4 3 county prce and loan defcency payments are represented by equaton 3 and equaton 4, respectvely. (3) PCP fut, harv P = P + β PCP, harv PCP (4) LDP = max( 0, LR P ) where fut harv P, s the commodty futures prce at harvest, β s the posted county prce PCP, harv bass and LR s the county loan rate for commodty. As equaton 4 llustrates, there s a possblty of not recevng a loan defcency payment n some years. Hedgng wth Futures and Optons Equaton 5 defnes the per bushel revenue from hedgng wth commodty futures where a futures contract s sold n the sprng and bought back at harvest. fut fut sprng fut, harv fut (5) R = ( P P ) C, where fut sprng P, and fut harv P, represent the commodty futures prce n the sprng and at harvest, respectvely, and fut C s the per bushel commsson cost for tradng n the futures market. (6) The per bushel revenue from hedgng wth put optons s descrbed n equaton 6. R opt harv sprng ( O O ) = O sprng C opt C opt f O harv other > O sprng where sprng O and harv O are the just out-of-the-money put opton premums n the sprng and at harvest, respectvely, and opt C s the broker s commsson for tradng n the optons market. Equaton 6 llustrates that the put opton wll only be sold f the premum at harvest s greater than the premum when purchased n the sprng. Otherwse, the opton wll expre and the producer pays the opton premum plus commsson (equaton 6).

5 4 APH and CRC Insurance The stochastc crop nsurance ndemnty less the premum pad for APH nsurance s descrbed n equaton 7. aph aph aph aph aph (7) R = P ( max( 0, Y, j * CL, j ) j Y, C,, j where Y, s the actual producton hstory (APH) yeld from whch nsurance protecton s aph j based. The APH yeld vares by the commodty produced,, as well as by producton practce, j. Both rrgated and non-rrgated producton types are smulated n ths study. The nsurance coverage levels, CL, aph j, can be purchased at 50, 55, 60, 65, 70, or 75 percent of the APH yeld (Davs 2004a). The smulated harvested yeld for crop and producton type j s represented by. The prce used to value the producton loss, P aph, s determned by the Federal Crop Y, j Insurance Corporaton each year before plantng (Ran and Hal). The premum for APH nsurance, aph C, j, s determned by the contnuous ratngs model and vares by the APH yeld, coverage level and county actuaral data (USDA RMA). The net ndemnty for crop revenue coverage (CRC) nsurance s defned by equaton 8. aph crc harv crc ( Y, j CL, j ) j Y, P C j crc base harv (8) = max 0, max( P, P ) where R, base P s the mnmum prce used n guaranteeng the nsured revenue. If prces ncrease throughout the growng season, the nsured revenue s prced at the hgher harvest tme prce harv P. The guaranteed revenue s the greater of the base or harvest prce multpled by the APH yeld and the coverage level purchased. The harvested yeld multpled by the harvest tme prce s the revenue used n determnng f any ndemnty s pad (Davs 2004b). The cost of

6 5 purchasng CRC nsurance s C, and s determned by the contnuous ratngs model (USDA crc j RMA). Farm-Level Yelds Farm-level yelds for Allendale County South Carolna were obtaned from the USDA Rsk Management Agency to smulate farm-level yeld rsk. The APH yelds for corn, soybeans and cotton produced wth and wth-out rrgaton were bootstrapped wth county-level yeld data (USDA NASS) n a procedure smlar to Atwood, Baquet, and Watts. The bootstrappng procedure smulated 400 ndependent twenty-fve year seres of farm-level yelds. The farmlevel yelds are used to determne the APH yelds for the smulaton model where the APH yeld s calculated as a 10-year movng average of the smulated farm-level yelds. The smulated farm-level yelds are also used n smulatng the harvested yeld for each crop and producton type. Descrpton of Smulaton Process The future market prces, opton premums, and smulated farm-level yelds are organzed by year n an excel spreadsheet. Two numbers are smultaneously drawn from two ndependent unform dstrbutons. The frst number s drawn from a unform dstrbuton rangng from 1 to 14 whch represents the smulaton years 1990 to Ths number determnes the prces used for ths teraton of the smulaton model. The second number s drawn from a unform dstrbuton rangng from 1 to 400 to determne the stochastc yeld strng used to smulate the APH yelds and the harvested yelds. The yelds and prces are from the same year and preserve the harvest-tme prce and yeld relatonshp for each commodty for each smulated year.

7 6 Data Daly futures data from 1990 to 2003 were obtaned from the Commodty Research Bureau (CRB) to smulate cash prces, posted-county prces, cash forward contract prces, and the effectveness of hedgng wth commodty futures. The Wednesday closng prces for the December corn, December cotton, and November soybean futures contracts were used n ths study. The CRC base and harvest tme prces are also determned from futures market prces. The process for determnng these prces are establshed by USDA RMA and are based on average commodty prces n the sprng and fall. For the Southeast regon, the September corn, September soybean, and December cotton contracts are used n establshng CRC prces (CRB). The just-out of the money put opton for the December corn, December cotton and November soybean contract for the strke prce closest to the closng prce on the last Wednesday of February s used to smulate the effectveness of hedgng wth optons (CRB). The loan rates n ths study are for the 2003 crop year for Allendale County, South Carolna (USDA FSA). The cash and posted county prce bass data from for Allendale County, South Carolna, were collected by Clemson Unversty Extenson (Curts). Farm-level yeld data were obtaned from USDA RMA and bootstrapped wth countylevel yeld data from USDA NASS to smulate farm-level yeld rsk. Scenaros Smulated All of the rsk management alternatves smulated n ths study are lsted n Table 1. Four general rsk management strateges are smulated. The frst strategy general strategy s the no rsk management scenaro and s the revenue from sellng n the cash market at harvest. The no rsk management strategy s smulated wth and wthout an LDP n order to quantfy the rsk

8 7 reducton provded by farm program payments. The no rsk management scenaros, lsted as Alternatves 0 and 1 n Table 1, serve as a benchmark for comparng the effectveness of the alternatve rsk management practces. The second general rsk management strategy s to only use the prce rsk management products but yeld rsk s not managed. The prce only strateges are lsted as Alternatves 2, 3, and 4 n Table 1. The gross revenues for these alternatves do nclude loan defcency payments. The thrd general rsk management strategy s to use APH or CRC nsurance to manage yeld rsk but prce rsk s not managed. The nsurance only strateges are lsted as Alternatves 5 and 6 n Table 1. The gross revenues for these alternatves do nclude loan defcency payments. Both APH and CRC nsurance are smulated at the 50, 55, 60, 65, 70, and 75 percent coverage levels. The 100% prce electon s used for APH nsurance. The fourth general rsk management strategy combnes the prce and yeld rsk management products and are lsted as Alternatves 7 through 12 n Table 1. The gross revenues for these alternatves also nclude loan defcency payments. Ths study assumes that the prce and/or yeld rsk management decson s made by the last Wednesday of February, as ths s approxmately when APH or CRC nsurance must be arranged n the Southeast Regon. Therefore, the sprng-tme hedgng and cash forward contract dates correspond to the nsurance decsons. The futures hedge s offset n the frst week n October to concde wth the completon of corn harvest, the start of cotton harvest, and the ntaton of soybean harvest. If the opton premums have any value, they are sold durng the frst week n October as well. The brokerage costs for the futures and optons markets are calculated on a per bushel bass for ths study.

9 8 The ffty-three dstnct rsk management strateges lsted n Table 1 are smulated for rrgated and non-rrgated corn, cotton and soybeans. The smulaton model s run for 10,000 teratons (Palsade). Results The smulated gross revenues for the alternatve rsk management strateges for rrgated corn producton are reported n Table 2. The strateges are ranked by mnmum gross revenue wth the mean gross revenue and rank out of the ffty-three strateges also reported. The smulated expected returns ranged $42 per acre from $289 to $331 per acre wth the mnmum gross revenues rangng from $0 to $142 per acre (Table 2). Several of the alternatves that provded protecton for the mnmum gross revenues also had expected gross revenues ranked n the top 10 (Table 2). The alternatve of hedgng wth futures plus CRC at the 75 percent coverage level plus LDP had the largest expected gross revenue and the second largest mnmum gross revenue. The nsurance products provdng the greatest rsk reducton were at the 60, 65, 70 or 75 percent coverage levels (Table 2). The 50 and 55 percent coverage levels were ranked n the bottom ffteen rsk management alternatves. The alternatves wth only prce rsk management practces provded the least amount of gross revenue protecton as they were not effectve when total crop falure occurred (Table 2). The strategy of hedgng wth futures, CRC at the 75 percent level plus LDP ncreased expected revenue by $27 over the no rsk management strategy of cash plus LDP and mproved the mnmum by $142 per acre (Table 2). The ranked strateges for non-rrgated corn producton are almost dentcal to those for rrgated corn producton. The expected gross revenue for non-rrgated corn ranged from $205 to $236 per acre whle the mnmum gross revenue ranged from $0 to $90 per acre (Table 3). The strategy of hedgng wth futures plus CRC at the 75 percent coverage level plus LDP

10 9 provded the greatest expected gross revenue and the second greatest mnmum return (Table 3). Ths strategy ncreased gross revenue by $21 per acre over the cash plus LDP opton and mproved the mnmum by $89 per acre (Table 3). The strateges wth APH and CRC purchased at the 50, 55, and 65 percent coverage levels tended to be ranked n the bottom ffteen strateges. The strateges only focusng on prce rsk had zero mnmum gross revenues as the strateges were not effectve durng years wth total crop falure (Table 3). The most successful and least successful rsk management strateges for rrgated cotton are reported n Table 4. The most successful strateges for rrgated cotton were almost dentcal to those for rrgated corn. The expected gross revenue for rrgated cotton ranged from $523 to $603 per acre whle the mnmum gross revenue ranged from $62 to $273 per acre (Table 4). The strateges of purchasng CRC at the 75 percent coverage level plus LDP plus cash sales or hedgng wth or wthout optons provded mean gross revenues of $595 per acre and mnmum gross revenues of $271 to $273 per acre, respectvely (Table 4). The top strateges had APH or CRC purchased at the 60 percent coverage level or greater. The strateges provdng the least protecton had nsurance purchased at the 50 or 55 percent levels. The worst performng strateges were those that only managed prce rsk (Table 4). The strategy of purchasng an opton plus CRC at the 75 percent level plus LDP had an expected gross revenue of $34 per acre above cash plus LDP and a mnmum return that was $185 per acre greater than the base case strategy of cash plus LDP (Table 4). There was very lttle dfference n the best performng and worst performng strateges between rrgated and non-rrgated cotton (Table 5). The expected gross revenues for nonrrgated cotton producton ranged from $437 to $489 per acre whle the mnmum gross revenues ranged from $0 to $211 per acre (Table 5). The strategy of purchasng a just-out of the

11 10 money put opton plus APH nsurance at the 75 percent coverage level plus LDP mproved the expected gross revenue by $14 per acre and mproved the mnmum gross revenue by $211 over the strategy of cash sales at harvest plus LDP (Table 5). Agan the prce only strateges provded the least amount of revenue protecton because they dd not provde protecton for yeld rsk. The rsk management strateges for rrgated soybeans are reported n Table 6. The results for soybeans are dfferent than those for corn and cotton. The second best expected gross revenue s the no rsk management strategy of cash sales at harvest plus LDP (Table 6). Twelve out of the top ffteen strateges nvolved the use of APH as opposed to the mostly equal use of APH and CRC for corn and cotton. There s also greater number of CFC and nsurance products n the top ffteen strateges for rrgated soybeans than for corn and cotton (Table 6). The worst performng strateges were mostly those nsurance products n the 70 and 75% coverage levels. The results for non-rrgated soybeans more closely resembles those for non-rrgated cotton than those for rrgated soybeans. The top strateges were nsurance products mostly n the 60, 65 and 70 percent coverage levels. Agan, the second largest expected gross revenue was for the strategy of sellng n the cash market at harvest and collectng the LDP (Table 7). A strategy of purchasng APH at the 75 percent level plus LDP has an expected gross revenue $4 per acre less than the base-case strategy but mproves the mnmum return by $40 per acre over the cash sale at harvest plus LDP strategy (Table 7). Conclusons and Suggestons for Further Research The prelmnary results suggest that South Carolna corn, cotton and soybean producers could reduce revenue rsks and ncrease expected gross revenue by usng combnatons of prce and yeld or revenue nsurance products. The loan defcency payments are also an mportant component of managng revenue rsk as t s a free put opton.

12 11 Further research wll consder rsk management strateges that hedge n the futures market or purchases put optons later n the sprng and early summer after plantng s completed and producers have a better ndcaton of expected producton needed to be protected. Further research wll also consder the rsk management for a case farm nstead of on a per acre bass. Smulatng a farm allows for the consderaton of matchng expected producton to the sze of futures and optons contracts. Another rsk not consdered n ths paper s the producton rsk assocated wth cash forward contracts and the cost assocated wth havng to purchase gran at harvest to meet contract commtments. Further research wll also explore why the rsk management strateges provdng the greatest rsk reducton for soybeans dffered from those for corn and cotton.

13 12 References Atwood, J., A. Baquet, and M. Watts. Ratng Procedures for IP Expanson to Full Seeded Wheat. Mmeo, Department of Agrcultural Economcs and Economcs, Montana State Unversty, Commodty Research Bureau. Hstorcal Futures and Optons Data from Data CD. Chcago, IL, Curts, C. South Carolna Cash and Posted County Prce Bass Data from Clemson Unversty Extenson, Unpublshed Data, Davs, T. Multple Perl Crop Insurance Another Way to Manage Rsk. Clemson Unversty Extenson. MMM 425, 2004a. Davs, T. Should I Consder Crop Revenue Coverage Insurance Ths Year? Clemson Unversty Extenson. MMM 426, 2004b. Palsade Rsk Software. Verson Prtchett, J., G. Patrck, K. Collns, and A. Ros. Rsk Management Strateges for Corn and Soybean Producers. Agrcultural Fnance Revew. Vol. 64 (Sprng 2004), Ran and Hal Insurance Servces, Inc. Quck Reference on Prce Electons for Major Crops. (Accessed December 2, 2004). USDA Farm Servce Agency Crop Loan Rates for Corn, Cotton, and Soybeans. (Accessed December 2, 2004). USDA Natonal Agrcultural Statstcs Servce. County-Level Yelds from for Allendale County, South Carolna. (Accessed December 2, 2004). USDA Rsk Management Agency. Crop Revenue Coverage Premum Calculaton Worksheet. (Accessed December 2, 2004). USDA Rsk Management Agency. Farm-Level Yelds for Allendale County, South Carolna from (Accessed July 8, 2004).

14 13 Table 1. Descrpton of Rsk Management Alternatves Smulated for Corn, Cotton, and Soybeans Produced Wth and Wthout Irrgaton. Alternatve Rsk Management Strategy 0 Sell n Cash Market at Harvest No-Rsk Management Strateges (Base Scenaros) 1 Sell n Cash Market at Harvest + LDP a. 2 Futures + LDP 3 Optons + LDP Prce Rsk Management Only Strateges 4 Cash Forward Contract (CFC) + LDP Insurance Products Only Strateges 5 APH b. Insurance (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 6 CRC c. (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP Combnatons of Prce and Insurance Products Strateges 7 Futures + APH (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 8 Futures + CRC (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 9 Optons + APH (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 10 Optons + CRC (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 11 Cash Forward Contract + APH (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP 12 Cash Forward Contract + CRC (50%, 55%, 60%, 65%, 70%, and 75% Coverage) + LDP a. LDP s an acronym for Loan Defcency Payment. b. APH s an acronym for Actual Producton Hstory Insurance. c. CRC s an acronym for Crop Revenue Coverage Insurance.

15 14 Table 2. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Irrgated Corn Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Cash + CRC 75% Coverage + LDP $142 1 $ Futures + CRC 75% Coverage + LDP $142 2 $ Cash + APH 75% Coverage + LDP $140 3 $ Optons + APH 75% Coverage + LDP $138 4 $ Cash + APH 70% Coverage + LDP $137 5 $ Optons + CRC 75% Coverage + LDP $137 6 $ Cash + CRC 70% Coverage + LDP $136 7 $ Futures + CRC 70% Coverage + LDP $134 8 $ Futures + APH 75% Coverage + LDP $133 9 $ Optons + APH 70% Coverage + LDP $ $ Optons + CRC 70% Coverage + LDP $ $ Cash + APH 65% Coverage + LDP $ $ Cash + CRC 65% Coverage + LDP $ $ Futures + APH 70% Coverage + LDP $ $ Cash + CRC 60% Coverage + LDP $ $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Optons + APH 50% Coverage + LDP $ $ CFC + APH 60% Coverage + LDP $ $ CFC + CRC 60% Coverage + LDP $ $ Optons + CRC 50% Coverage + LDP $ $ Futures + APH 50% Coverage + LDP $97 43 $ CFC + APH 55% Coverage + LDP $96 44 $ CFC + CRC 55% Coverage + LDP $96 45 $ Futures + CRC 50% Coverage + LDP $95 46 $ CFC + APH 50% Coverage + LDP $89 47 $ CFC + CRC 50% Coverage + LDP $89 48 $ Cash $0 49 $ Cash + LDP $0 50 $ Cash Forward Contract + LDP $0 51 $ Futures + LDP $0 52 $ Optons + LDP $0 53 $

16 15 Table 3. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Non-Irrgated Corn Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Optons + APH 70% Coverage + LDP $90 1 $ Futures + CRC 75% Coverage + LDP $89 2 $ Futures + APH 75% Coverage + LDP $89 3 $ Optons + CRC 70% Coverage + LDP $88 4 $ Cash + CRC 65% Coverage + LDP $88 5 $ Optons + APH 75% Coverage + LDP $87 6 $ Cash + CRC 70% Coverage + LDP $86 7 $ Optons + CRC 75% Coverage + LDP $86 8 $ Cash + APH 75% Coverage + LDP $86 9 $ Futures + APH 70% Coverage + LDP $85 10 $ Cash + CRC 60% Coverage + LDP $85 11 $ Futures + CRC 70% Coverage + LDP $85 12 $ Optons + APH 65% Coverage + LDP $85 13 $ Cash + APH 70% Coverage + LDP $85 14 $ Cash + CRC 75% Coverage + LDP $84 15 $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank CFC + CRC 60% Coverage + LDP $72 39 $ CFC + APH 55% Coverage + LDP $72 40 $ CFC + CRC 55% Coverage + LDP $72 41 $ Futures + APH 50% Coverage + LDP $72 42 $ Futures + CRC 50% Coverage + LDP $71 43 $ Cash + APH 55% Coverage + LDP $70 44 $ Optons + APH 50% Coverage + LDP $70 45 $ CFC + APH 50% Coverage + LDP $66 46 $ CFC + CRC 50% Coverage + LDP $66 47 $ Cash + APH 50% Coverage + LDP $65 48 $ Cash $0 49 $ Cash + LDP $0 50 $ Cash Forward Contract + LDP $0 51 $ Futures + LDP $0 52 $ Optons + LDP $0 53 $

17 16 Table 4. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Irrgated Cotton Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Cash + CRC 75% Coverage + LDP $273 1 $ Optons + CRC 75% Coverage + LDP $271 2 $ Cash + APH 75% Coverage + LDP $268 3 $ Optons + APH 75% Coverage + LDP $265 4 $ Futures + APH 70% Coverage + LDP $261 5 $ Futures + APH 75% Coverage + LDP $260 6 $ Cash + CRC 70% Coverage + LDP $260 7 $ Futures + CRC 75% Coverage + LDP $260 8 $ Optons + CRC 70% Coverage + LDP $259 9 $ Cash + APH 70% Coverage + LDP $ $ Futures + CRC 60% Coverage + LDP $ $ Optons + APH 70% Coverage + LDP $ $ Futures + CRC 65% Coverage + LDP $ $ Optons + CRC 65% Coverage + LDP $ $ Futures + CRC 70% Coverage + LDP $ $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Cash + APH 55% Coverage + LDP $ $ Futures + APH 55% Coverage + LDP $ $ Optons + APH 55% Coverage + LDP $ $ CFC + APH 55% Coverage + LDP $ $ CFC + CRC 55% Coverage + LDP $ $ Cash + APH 50% Coverage + LDP $ $ Futures + APH 50% Coverage + LDP $ $ Optons + APH 50% Coverage + LDP $ $ CFC + APH 50% Coverage + LDP $ $ CFC + CRC 50% Coverage + LDP $ $ Cash + LDP $88 49 $ Optons + LDP $84 50 $ Futures + LDP $78 51 $ Cash $64 52 $ Cash Forward Contract + LDP $62 53 $

18 17 Table 5. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Non-Irrgated Cotton Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Optons + APH 75% Coverage + LDP $211 1 $ Cash + CRC 75% Coverage + LDP $210 2 $ Cash + APH 75% Coverage + LDP $204 3 $ Cash + CRC 70% Coverage + LDP $203 4 $ Futures + APH 75% Coverage + LDP $200 5 $ Optons + CRC 70% Coverage + LDP $199 6 $ Optons + CRC 75% Coverage + LDP $198 7 $ Futures + CRC 75% Coverage + LDP $198 8 $ Optons + APH 70% Coverage + LDP $198 9 $ Cash + CRC 65% Coverage + LDP $ $ Futures + CRC 70% Coverage + LDP $ $ Cash + APH 70% Coverage + LDP $ $ Futures + APH 70% Coverage + LDP $ $ Optons + CRC 65% Coverage + LDP $ $ Optons + APH 65% Coverage + LDP $ $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Futures + APH 50% Coverage + LDP $ $ Futures + CRC 50% Coverage + LDP $ $ Optons + APH 50% Coverage + LDP $ $ Cash + APH 50% Coverage + LDP $ $ CFC + APH 60% Coverage + LDP $ $ CFC + CRC 60% Coverage + LDP $ $ CFC + APH 55% Coverage + LDP $ $ CFC + CRC 55% Coverage + LDP $ $ CFC + APH 50% Coverage + LDP $ $ CFC + CRC 50% Coverage + LDP $ $ Cash $0 49 $ Cash + LDP $0 50 $ Cash Forward Contract + LDP $0 51 $ Futures + LDP $0 52 $ Optons + LDP $0 53 $

19 18 Table 6. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Irrgated Soybean Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Optons + APH 75% Coverage + LDP $128 1 $ Cash + APH 75% Coverage + LDP $125 2 $ Optons + APH 70% Coverage + LDP $122 3 $ Cash + APH 70% Coverage + LDP $118 4 $ Futures + APH 65% Coverage + LDP $117 5 $ Futures + APH 60% Coverage + LDP $115 6 $ Futures + APH 70% Coverage + LDP $115 7 $ CFC + APH 70% Coverage + LDP $115 8 $ CFC + CRC 70% Coverage + LDP $115 9 $ Optons + APH 65% Coverage + LDP $ $ Futures + APH 75% Coverage + LDP $ $ CFC + APH 75% Coverage + LDP $ $ CFC + CRC 75% Coverage + LDP $ $ CFC + APH 65% Coverage + LDP $ $ CFC + CRC 65% Coverage + LDP $ $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Optons + CRC 50% Coverage + LDP $72 39 $ Cash $72 40 $ Cash + LDP $72 41 $ Optons + CRC 55% Coverage + LDP $71 42 $ Optons + CRC 60% Coverage + LDP $70 43 $ Futures + CRC 75% Coverage + LDP $68 44 $ Cash + CRC 50% Coverage + LDP $68 45 $ Optons + CRC 65% Coverage + LDP $67 46 $ Cash + CRC 55% Coverage + LDP $67 47 $ Cash + CRC 60% Coverage + LDP $66 48 $ Optons + CRC 70% Coverage + LDP $64 49 $ Cash + CRC 65% Coverage + LDP $63 50 $ Cash + CRC 70% Coverage + LDP $61 51 $ Optons + CRC 75% Coverage + LDP $59 52 $ Cash + CRC 75% Coverage + LDP $55 53 $

20 19 Table 7. The Top Ffteen and Bottom Ffteen Rsk Management Alternatves Ranked by Mnmum Gross Revenue for Managng Rsk for Non-Irrgated Soybean Producton. Top 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Cash + APH 75% Coverage + LDP $101 1 $ Optons + APH 75% Coverage + LDP $96 2 $ Cash + CRC 75% Coverage + LDP $95 3 $ Cash + CRC 70% Coverage + LDP $95 4 $ Cash + APH 70% Coverage + LDP $94 5 $ Optons + CRC 70% Coverage + LDP $90 6 $ Cash + CRC 65% Coverage + LDP $90 7 $ Optons + CRC 75% Coverage + LDP $89 8 $ Cash + APH 65% Coverage + LDP $89 9 $ Optons + APH 70% Coverage + LDP $89 10 $ Cash + APH 60% Coverage + LDP $87 11 $ Futures + APH 75% Coverage + LDP $85 12 $ CFC + APH 75% Coverage + LDP $85 13 $ CFC + CRC 75% Coverage + LDP $85 14 $ Cash + CRC 60% Coverage + LDP $85 15 $ Bottom 15 Rsk Management Strateges -- Ranked by Mnmum Revenue Strategy Mnmum Rank Mean Rank C.V. Rank Futures + CRC 60% Coverage + LDP $72 39 $ Futures + CRC 65% Coverage + LDP $71 40 $ Cash + LDP $71 41 $ Optons + LDP $68 42 $ Futures + APH 55% Coverage + LDP $67 43 $ CFC + APH 55% Coverage + LDP $67 44 $ CFC + CRC 55% Coverage + LDP $67 45 $ Futures + CRC 55% Coverage + LDP $66 46 $ Futures + APH 50% Coverage + LDP $65 47 $ CFC + APH 50% Coverage + LDP $65 48 $ CFC + CRC 50% Coverage + LDP $65 49 $ Futures + CRC 50% Coverage + LDP $64 50 $ Cash $62 51 $ Futures + LDP $57 52 $ Cash Forward Contract + LDP $57 53 $