farmer risk perceptions and demand for risk management education keith h. coble, mississippi state...

Farmer Risk Perceptions and Demand Farmer Risk Perceptions and Demand for Risk Management Educationfor Risk Management Education

Keith H. Coble, Mississippi State UniversityThomas O. Knight, Texas A&M University

George F. Patrick, Purdue University

Alan E. Baquet, University of Nebraska

www.agecon.msstate.edu/riskedu

Supportive Research to Provide a Baseline Supportive Research to Provide a Baseline of Agricultural Risk Managementof Agricultural Risk ManagementEducation NeedsEducation Needs Shed light on producer risk management perceptions

– How producers perceive the risk they face and manage those risks?

– How they want risk management education delivered?– What factors, such as size, age, and education, influence

producers’ perceptions?– How do perceptions vary by region and commodity?

Investigate agricultural lenders’ and extension educators’ perceptions and understanding of alternative risk management tools and strategies.

Activities to DateActivities to Date

Surveys of: – Row crop producers

• A preliminary summary of data• (http://www.agecon.msstate.edu/riskedu/)

• An analysis of policy preferences• The demand for risk management education

– Beef cattle producers– Hog producers– Limited-resource producers

Crop Producer SurveyCrop Producer Survey

Mail survey in four states Stratified by gross revenue Crops emphasized

– Indiana: Soybeans and Corn– Mississippi: Cotton and Soybeans– Nebraska: Soybeans and Corn– Texas: Cotton and Sorghum

1812 useable responses – approximately 30% response rate

Crop Producer Survey - ResultsCrop Producer Survey - Results

Perceptions of risks and risk management tools

Assessment of Risks Confronting Assessment of Risks Confronting the Farmthe Farm

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Change inFarm

Programs

Change inGovt.

Regulation

YieldVariability

PriceVariability

Change inInput Cost

Change inLand Rent

We

igh

ted

Ave

rag

e R

es

po

ns

e (

1-5

Sc

ale

)

Rated Effectiveness of Risk Rated Effectiveness of Risk Management StrategiesManagement Strategies

Rated Effectiveness of Risk Management Strategies

0

0.5

1

1.5

2

2.5

3

3.5

4

EnterpriseDiversification

Being a lowcost producer

Forward Pricing Crop Insurance Off-farmInvestment

Off-farmEmployment

MaintainingFinancialReserves

We

igh

ted

Ave

rag

e R

esp

on

se (

1-5

Sca

le)

Farmer Interest and Demand for Farmer Interest and Demand for Risk Management Risk Management EducationEducationParticipation in risk management

educational activitiesSources of risk management information Comfort in using risk management toolsDesired content and delivery of future

risk education

Participation in Educational Programs Participation in Educational Programs

During the Past Three YearsDuring the Past Three Years

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Marketing Insurance Financial Mgmt.

Pe

rce

nt

Part

icip

ati

on

Stratum 1: $25,000-$99,999 Stratum 2: $100,000 - $249,999

Stratum 3: $250,000 - $$499,999 Stratum 4: > $500,000

Average Hours of Risk Management Average Hours of Risk Management

Training During the Past Three YearsTraining During the Past Three Years

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0


Ho

urs

Stratum 1: $25,000-$99,999 Stratum 2: $100,000 - $249,999

Stratum 3: $250,000 - $$499,999 Stratum 4: > $500,000

Percent of Risk Management Percent of Risk Management Training During the Past Three Years Training During the Past Three Years

From ExtensionFrom Extension

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0


Pe

rce

nt

Stratum 1: $25,000-$99,999 Stratum 2: $100,000 - $249,999

Stratum 3: $250,000 - $$499,999 Stratum 4: > $500,000

Comfort in Using Risk Comfort in Using Risk Management ToolsManagement Tools

0

0.5

1

1.5

2

2.5

3

3.5

4

Fwd. Contracting Futures/Options Yield Ins. Revenue Ins. Financial Mgmt.

Av

era

ge

Re

sp

on

se

1-5

Sc

ale

Stratum 1: Gross Revenue of $25,000-$99,999



Stratum 4: Gross Revenue >=$500,000

Interest in Additional Risk Interest in Additional Risk Management EducationManagement Education

0

0.5

1

1.5

2

2.5

3

3.5

4

Fwd.Contracting

Futures/Options Yield Ins. Revenue Ins. Financial Mgmt.

Av

era

ge

Re

sp

on

se

1-5

Sc

ale





Rating of Alternative Learning Rating of Alternative Learning MethodsMethods

0

0.5

1

1.5

2

2.5

3

3.5

Direct Self Training Magazines Internet Mkting. Clubs

Av

era

ge

Re

sp

on

se

1-5

Sc

ale





The Research Question --The Research Question --

Probit models of expressed ‘strong interest’ in additional training in the use of 5 risk management practices?– Forward contracting -Futures and options– Crop yield insurance -Crop revenue insurance– Financial management

Dependent variable– “How would you rate your interest in obtaining additional

information or education on each of the following risk management tools?”

– Rating scale 1-5 where 1 indicates “Low Interest” and 5 indicates “High Interest”

– Dependent variable = 1 for ratings of 4 or 5

Explanatory VariablesExplanatory Variables

Hours of prior training Prior use of practice Cropland acres Off farm income Percent borrowed Operator age College education High potential effect of

price risk

High potential effect of yield risk

Practice recommended by lender

Willingness to accept lower price to avoid risk

Percent of crop acres in corn / cotton / sorghum / soybeans /wheat

Descriptive StatisticsDescriptive Statistics

Variable Mean Min. Max.

S tro ng Inte re s t in : Fo rw a rd C o ntra c t ingF utu re s a n d O p tio nsC ro p Y ie ld In sura n c eC ro p R e v e nu e Insu ra nc eF in a nc ia l M a na g e m e nt

5 0 .05 2 .03 8 .04 0 .05 3 .0

00000

1 0 0 .01 0 0 .01 0 0 .01 0 0 .01 0 0 .0

P rio r H o urs T ra in ing : Fw d . C o nt rac t ing a nd F utu re sa nd O p tio nsC ro p Y ie ld a nd R e v e nu eInsu ra nc e

6 .0

1 .7

0

0

3 0 0 .0

7 2

P rio r U se o f P rac t ic e : Fo rw a rd C o ntra c t ing F utu re s a n d O p tio ns

C ro p Y ie ld In sura n c eC ro p R e v e nu e Insu ra nc eF in a nc ia l M a na g e m e nt

0 .6 10 .3 20 .4 80 .1 7N A

0000

N A

1111

N A

C ro p la nd A c re s (10 0 's ) 1 4 .87 2 5 .0 1 8 0 .0

O ff F arm Inc o m e 2 0 .2 0 1 0 0

Descriptive StatisticsDescriptive StatisticsVariable Mean Min. Max.

P e rce n t B o r ro w e d 3 9 .6 0 1 0 0

O p e ra to r A g e 5 1 1 9 8 9

C o lle g e 0 .6 8 0 1

H igh Po t e nt ia l E ffe c t o f Pric e R isk 0 .9 4 0 1

H igh Po t e nt ia l E ffe c t o f Y ie ld R isk 0 .7 8 0 1

P ra c tic e R e c o m m e n d ed by L e n d e r 0 .3 1 0 1

W illing ne ss to A c c e p t L o w e r P ric e t o A vo id P ric e R isk 0 .3 5 0 1

P e rce n t o f C ro p A c rea g e in C o rn 0 .2 6 0 1 0 0

P e rce n t o f C ro p A c rea g e in C o tt o n 0 .2 3 0 1 0 0

P e rce n t o f C ro p A c rea g e in G ra in So r gh um 0 .0 6 0 1 0 0

P e rce n t o f C ro p A c rea g e in So yb e a ns 0 .3 1 0 1 0 0

P e rce n t o f C ro p A c rea g e in W he a t 0 .0 7 0 1 0 0

VariableForward Contract

Futures &Options

YieldInsurance

RevenueInsurance

FinancialMgmt.

Prior Hours Training NS 0.2 0.8 0.8 0.8

Prior Use of Practice 14.3 6.6 8.8 12.2 NA

Cropland Acres (100's) NS NS NS 0.002 0.003

Off Farm Income NS NS NS NS NS

Percent Borrowed 0.1 0.2 0.1 0.1 0.2

Operator Age -0.2 -0.4 NS NS -0.4

College NS 8.6 NS 6.2 7.3

High Potential Effect of Price Risk 18.5 11.1 10.2 17.1 17.6

High Potential Effect of Yield Risk NS NS 8.0 6.8 NS

Recommended by Lender 8.9 12.4 12.3 12.6 NA

Willingness to Accept Lower Price toAvoid Price Risk

NS 8.3 11.1 10.1 4.9

Percent Corn NS NS NS NS NS

Percent Cotton NS NS 19.1 24.8 NS

Percent Grain Sorghum NS NS NS NS NS

Percent Soybeans NS NS NS 21.4 NS

Percent Wheat NS NS 21.6 23.7 NS

Marginal Effect Results From Marginal Effect Results From Probit modelsProbit models

Summary of ResultsSummary of Results

Those individuals who had attended average hours of training in the past three years were about 12% more likely to express interest in additional training in each of the areas except forward pricing.

Persons who had used a practice in the past two or three years were about 10% to 12% more likely to express interest in additional training.

Farmers with higher debt-to-asset ratios expressed greater interest in all five areas.


Operator age had a negative effect on interest in training on forward contracting, futures and options, and financial management.

College educated respondents expressed greater interest in training on futures and options, revenue insurance, and financial management.

Persons who perceived themselves as being subject to a high level of price risk had greater interest in training in all areas.


Persons who perceived themselves as subject to a high level of yield risk had greater interest in training on yield insurance and revenue insurance.

Individuals whose lender advocated the use of a risk management practice were about 9% to 13% more likely to express interest in training.

Persons willing to accept a lower price to avoid price risk were about 5% to 11% more likely to express interest in training in areas other than forward contracting.

What does this mean for risk What does this mean for risk management education (RME)?management education (RME)? Results confirm that producers view price and

yield variability as having the highest potentials to affect their incomes.

Other sources of risk are less important - less than 4 but greater than 3 on scale.

Being low-cost producer, maintaining financial reserves, and enterprise diversification were rated above forward pricing and crop insurance for effectiveness in reducing risk.

Implications for RMEImplications for RME

Only 35.0% of producers indicated a willingness to take a lower price to reduce price risk.

51.3% disagreed with statement their primary marketing goal was to reduce risks rather than raise net sales price.

33.6% of cotton producers and 36.8% of corn producers would not give up ANY yield to avoid yield variability.


Many producers’ perceptions of risk management strategies apparently do not reflect the risk/reward trade-off that underlies most of risk management

Phase 1 educational programs will need to help those producers understand the fundamentals of risk management. Only after producers understand fundamentals can more specific programs be effective.


Costs of risk management is not a popular lesson with many producers.

Programs on reducing price risks are not likely to be popular if producers think they “can beat the market.”

Helps explain some of the lack of success in past efforts.

Results suggest that farm magazines are likely to work better than the Internet for this message.


Large-scale producers have greater interest in risk management information and are more comfortable using tools than small-scale producers

Extension has worked with both large and small- scale producers, but has not provided the majority of educational training in risk management.

Needs of producers of different sizes are likely to be different. This challenges us to be creative in program design and delivery


Probit analyses suggest that the most likely customer for tomorrow’s risk management education program is the current or past customer.

Challenge to broaden the customer base– New tools like AgRisk?– Partnering with private sector in delivery?– Partnering in development and delivery?

farmer risk perceptions and demand for risk management education keith h. coble, mississippi state...

Documents

risk management educationkeith

farmer risk perceptions

farm programs3

farm programschange

farm employment2

farm investment2

76v216offfarm employment3

87v215offfarm investment3