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3. 2023 Extension Risk Management Education National Conference

Riskiness of Returns to Entrepreneurship for Major U.S. Field Crops

Godfrey Ejimakor

Summary

One of the major problems facing farmers is the variability in returns. The problem is especially important for beginning and small farmers who may have little or no credit reserves to carry them through one or more years of negative returns. Such farmers must first survive in order to have a change at making or maximizing profit which is the objective of most businesses. New and beginning farmers will have a better chance of being resilient and surviving adversity if they take the variability associated with different crop enterprises into account when deciding on what crop(s) to produce.

Existing farmers could use information on the variability of returns to make risk-efficient decisions on the crops or combination of crops to produce. We attempt to provide the information for such decision-
making by estimating the rates of return for major U.S. grains such as corn, rice, sorghum, and wheat.

We use time series data to estimate the annual rates of return to entrepreneurship as returns over all costs for each of the crops over the last 30 years. We estimate the mean rates of returns and the risk
associated with the returns for each crop. We then rank the returns from the crops based on their risk-return profile. The ranking provides a basis for existing and new farmers to decide on which crop(s) to produce.

Details

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