Managing Net Income Risk with Crop Insurance, Farm Bill, and Hedging

Managing uncertain yields and prices before planting is a primary concern to producers, especially when financial ruin is at stake. To manage uncertainty, producers are presented with a complex set of financial tools from both public sources (crop insurance and Farm Bill) and private sources (commodity futures markets). Over time these tools and their relation have evolved. Prior to the mid-1990s, before crop insurance expanded, producers relied primarily on privately operated commodity futures markets and publicly funded government programs, such as the disaster assistance program and the loan deficiency program, to reduce income uncertainty. Since this time the U.S. government has dramatically enhanced the Federal Crop Insurance Program, making it the primary publicly funded government program available to producers