| Risk is an unavoidable factor embedded in agriculture and risk management is among the essential objectives of agribusiness management. Given that possible price declines and yield shortfalls are the two most important sources of agricultural risk, efficient risk management can be accomplished through the effective use of price-risk and yield-risk management strategies.; The objective of this dissertation is to select the optimal strategy or mix of strategies for crop producers to manage risk resulting from possible yield shortfalls and/or price declines. Specifically, various strategies under consideration were evaluated to identify the most efficient one(s) that maximize(s) the expected income over time for any given level of risk. The crops considered in this study were corn, cotton, soybeans, and wheat, grown in five major agricultural counties of South Carolina (Allendale, Clarendon, Hampton, Orangeburg, and Sumter). Two Target Deviation models, Target MOTAD and Target Semivariance, were used to specify the corresponding risk and identify the optimal risk management strategies.; The major findings of this study include: first, a crop producer should choose the appropriate risk management strategies based on the practice he/she has used to grow his/her crops (i.e., with or without irrigation); second, the growth characteristics of crops (i.e., highly dependent on moisture or drought-tolerant) play an important role in determining the appropriate risk management strategies; third, a producer must be prepared to take a certain degree of risk if he has a high income objective (i.e., a positive relation between the expected income and the level of risk). At the same time, the preferred risk management strategies may be region-specific.; Further, in this context, the Target MOTAD model (in which risk is defined as the expected deviation below a target income level) is more appropriate than the Target Semivariance model (in which risk is defined as the expected squared deviation below a target income level) for measuring agricultural risk. The Target Semivariance model may overestimate the risk by squaring the income deviations and thus putting too much weight on the large deviations; as a result, the objective of maximizing the expected income subject to a given level of risk becomes infeasible in most cases. |
