Cooperative risk management, rationale, and effectiveness: The case of dairy cooperatives

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7 Scopus citations

Abstract

Numerical simulation of several typical risk management strategies using pro forma financial statements from representative U.S. dairy cooperatives shows that combinations of forwards, swaps, and cash marketing strategies for output (cheese), along with various forward contracts offered to cooperative members to manage the variability of milk revenues, have the potential to improve cooperative‐, and ultimately member‐level risk‐return performance. Because most cooperatives have limited access to equity capital, effective use of available risk management tools can increase cooperative value by increasing debt capacity, avoiding bankruptcy costs, and preventing the distortion of capital budgeting decisions. Moreover, the offering of risk management tools to individual members as a service may prove valuable in the retention of these members in the cooperative.

Original languageEnglish (US)
Pages (from-to)311-339
Number of pages29
JournalAgricultural Finance Review
Volume67
Issue number2
DOIs
StatePublished - Nov 1 2007

Keywords

  • Cooperative
  • Expected utility
  • Futures
  • Options
  • Risk management
  • Value‐at‐risk

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)

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