The name is absent



mrT = ^.[A,tZ,t ]
i


(1)


where wi is the proportion of ith crop (i=1,2) on the farm and Tis the terminal time period.
Revenue from hedging using price and yield futures,
hr^T, is found by:

hrp-γτ = wi [P1Ty1T + (hrp,i)(Pit - P1T )Et(yιT ) + (hry,1 )(- Yτ )Et (Pi,τ )]     (2)

i

where hrp and hr* are price and yield hedge ratios, Et (yu) and Et (pv) are expectations made at
time
t about terminal yields and prices, Pi,t is the new-crop futures price for crop i at time t, and
Yi,t is the yield futures for crop i at time t. The second and third terms in (2) describe the income
generated in the price and crop yield futures markets. For example, assume the price hedge ratio
is one. The hedge is placed by establishing a short position in the price futures market equal to
Et
(yi,τ)*Pu. The hedge is maintained until contract expiration when the futures position is offset at
the value equal to
Et (yιτ)*Pi. Likewise, assume the yield hedge ratio is one. A short position is
established in the yield futures market equal to
Et(pt,τ)*Yu , which is offset at Et(pu)*Ylt. In this
illustration, where the two hedge ratios are equal to one, a “full hedge# is described because the
quantity established in the price hedge is the expected yield and the price established in the yield
hedge is the expected price. A “partial hedge# is described by setting
0<hrpi <1 and /or 0<hryi<1.
Setting
hrp,i to zero results in a “pure# yield hedge and setting hry,i to zero results in a “pure#
price hedge.

Revenue from participation in the 1990 Farm Bill government support programs, rdlτ, can
be described as:

rdlτ = wi [ Max ( pi τ,LR1 )yι,τ + (PgmYi )(1 - ( ARP + Flex))Max(TP1 - Max(pi,τ, LRi ))] (3)
i

where LR is the loan rate, PgmYi is the program yield, ARP and Flex are the percentages of
setaside acres and flex acres, and
TP is the target price. The first term describes the revenue
payout from the non-recourse loan program while the second term describes revenue from
deficiency payments. There are no deficiency payments for soybeans.

Revenue from a hypothetical revenue assurance program, raτ, is described by:

raT =wi [Max((pi,Tyi,t ), ΘZi )]    (4)

i



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