Assessing the Impact of Price and Yield Risk in the Southern U.S. Catfish Industry

Abstract

The study characterizes catfish price and yield risk by empirically determining the probability distribution of stochastic price and yield variables. The impact of the stochastic variables is then evaluated in the context of a catfish enterprise budget. Probability distributions of net returns are evaluated using stochastic dominance criteria. Results indicated that the distributions of yields and catfish prices appear to determine the shape of the distribution of residual net returns, and that the beta distribution most appropriately described the expected net returns for all combinations of production systems and farm sizes. If a beta distribution describes reality, but the risk averse producer assumes his expected returns are normally distributed, then he or she will underestimate the probability of obtaining low net returns. Thus, under an assumption of normality, producers may make decisions that place their operations in greater financial peril than they may otherwise would if they understood the true distribution of their expected net returns. Results also showed that the single-batch production system for small size farms was the most inefficient technology/size combination.