Abstract
AbstractOne of the most popular risk management strategies for wheat producers is varietal diversification. Previous studies proposed a mean-variance model as a tool to optimally select wheat varieties. However, this study suggests that the mean–expected shortfall (ES) model (which is based on a downside risk measure) may be a better tool because variance is not a correct risk measure when the distribution of wheat variety yields is multivariate nonnormal. Results based on data from Texas Blacklands confirm our conjecture that the mean-ES framework performs better in term of selecting wheat varieties than the mean-variance method.
Highlights
It is alarming that recent climate changes could lead to severe reduction in wheat production and higher variability in wheat yields (Gourdji et al, 2013; Lobell, Sibley, and Ortiz-Monasterio, 2012; Tack, Barkley, and Nalley, 2014, 2015a; Tubiello et al, 2002)
This study focuses on a single-period wheat variety selection problem because wheat producers can change the varieties planted each year
We compare the optimal allocations suggested by the various optimization models with the 2014 actual allocation of wheat varieties and examine potential gains from applying portfolio optimization methods to wheat variety selection with the 2014 actual allocation as the evaluation benchmark
Summary
It is alarming that recent climate changes (especially, the continued changes in frequency and intensity of high-temperature events) could lead to severe reduction in wheat production and higher variability in wheat yields (Gourdji et al, 2013; Lobell, Sibley, and Ortiz-Monasterio, 2012; Tack, Barkley, and Nalley, 2014, 2015a; Tubiello et al, 2002). The producers may increase the number of farm locations (i.e., geographic diversification) to reduce risk associated with location-specific weather conditions and with stochastic price (or demand) shocks to local. Of these many forms of agricultural diversification, varietal diversification seems to be the most cost-effective method for wheat producers to manage yield risk. Planting more than one wheat variety each year potentially forms a natural insurance against the risk associated with yield loss from changing climate and growing conditions. The theory suggests that wheat varietal diversification could reduce yield risk and, income risk, through less-than-unit correlations among yields of different wheat varieties. Several studies applied the mean-variance framework and showed that farm profitability could be enhanced through mean-variance optimization (Barkley, Peterson, and Shroyer, 2010; Mortenson et al, 2012; Nalley and Barkley, 2010; Nalley et al, 2009)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
