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Risks, Pre-Harvest Hedging, and Crop Insurance

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Recently, research has examined risk reductions associated with levels of pre-harvest hedging for different crop insurance products. In general, modest levels of hedging decrease risk. In the example shown in figure 1, hedging up to 15 percent of expected production reduces risk. Then there is a range where risk levels change very little. In figure 1, this occurs between 15 and 65 percent of expected production. Hedging increases risk after some point (65 percent of expected production in figure 1).

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