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Weather‐based instruments in the context of whole‐farm risk management

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 5 May 2008

Abstract

Recent and presumable future developments tend to increase the risks associated with farming activities. These include climate risks, which have always played an important role in farming. Weather‐based instruments can be valuable tools to reduce the risk associated with unfavourable climate events. However, a number of factors could limit the hedging effectiveness of these tools. These factors include basis risk, the impacts of remaining price uncertainty, and diversification effects. This paper addresses the influence of each of these factors. In the final section, an integrated approach for a comprehensive assessment of weather derivatives and other hedging instruments is proposed that is based on the concept of portfolio optimization.

Keywords

Citation

Berg, E. and Schmitz, B. (2008), "Weather‐based instruments in the context of whole‐farm risk management", Agricultural Finance Review, Vol. 68 No. 1, pp. 119-133. https://doi.org/10.1108/00214660880001222

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited