Abstract
Dairy production is one of the most significant segments of the agricultural industry in the United States providing for jobs, value added processing, and nutritious products to countless consumers. In Idaho, the dairy industry is equally impactful to the state’s agricultural industry. In a state where every dairy is family owned and agriculture is a lifestyle. Tragically, dairy farms in Idaho and nationwide are going out of business due to increasing pressures on profit margins on dairy farms, leading to consolidation in dairy farms. It is important to provide this industry the tools so that dairy operations have a greater ability to stay profitable and in business.
Marketing risk (the risk of changing prices for a commodity) is one of the greatest factors influencing the dairy industry consolidation. Risk management tools are available for dairy farms of all sizes to use allowing for the offsetting of marketing risk; yet they are used at a rate fractional to that of other agricultural industries such as grains and livestock.
This thesis details the current risk management tools and strategies available to the dairy industry. A panel of dairy risk management experts provided risk management potential strategies for dairy producers to be able to reduce margin risk. The efficacy of different risk management strategies was analyzed for potential use in production by applying each treatment to historical data. These treatments are compared to the control of no risk management practices. Performance was compared using stochastic dominance. The results of this work will benefit dairy farms of all sizes, especially smaller farms who might not have the time or resources to determine an optimal risk management strategy.