The Effect of Crop Insurance Premium Subsidies on Soybean Producers' Risk Management Portfolios

We examine how reducing subsidies for federal crop insurance affects the risk management portfolios of US soybean producers. We apply the portfolio optimization approach of Das and Statman \citeyearpar{das2013options} to model how producers’ risk management portfolios change as subsidies for federal crop insurance premiums change, and examine how the changes to the risk management portfolios impact farmers’ on-farm income and exposure to downside risk. We optimize farmers’ risk management portfolio by adjusting the budget shares dedicated to each of four risk management tools: returns on production, forward contracting, savings, and crop insurance