AN ANALYSIS OF THE YIELD-PRICE RISK ASSOCIATED WITH SPECIALTY CROPS

Abstract

Specialty crops have been cited as means to diversify crop portfolios on the prairies. Lentils, a specialty crop, have high variability in yields and prices but are relatively uncorrelated with the yields and prices of other traditional Saskatchewan crops. In addition, yields and prices of lentils may be negatively correlated. These attributes have important but offsetting effects in crop portfolio selection. The objective of this article is to assess the relative profitability and riskiness of wheat and lentil rotations for a representative Saskatchewan farm and to select appropriate farmers who should consider production of lentils. The cumulative density function of net returns are simulated for both rotations assuming stochastic prices and yields. Stochastic dominance with respect to a function is used to identify the corresponding appropriate profile of agricultural producers for each crop rotation. The results indicate that lentils should be considered by a number of, but not all, Saskatchewan farmers.

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