The Effect of Crop Insurance Premium Subsidies on Soybean Producers' Risk Management Portfolios
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We examine how reducing subsidies for federal crop insurance affects the risk management portfolios of US soybean producers. We apply the portfolio optimization approach of Das and Statman \citeyearpar{das2013options} to model how producers’ risk management portfolios change as subsidies for federal crop insurance premiums change, and examine how the changes to the risk management portfolios impact farmers’ on-farm income and exposure to downside risk. We optimize farmers’ risk management portfolio by adjusting the budget shares dedicated to each of four risk management tools: returns on production, forward contracting, savings, and crop insurance.