This study focuses on managing cotton production and marketing risks using
combinations of irrigation levels, put options (as price insurance), and
crop insurance. Stochastic cotton yields and prices are used to simulate a
whole-farm financial statement for a 1,000 acre furrow-irrigated cotton farm
in the Texas Lower Rio Grande Valley under 16 combinations of risk
management strategies. Analyses for risk-averse decision makers indicate
that multiple irrigations are preferred. The benefits to purchasing put
options increase with yields, as they are more beneficial when higher yields
are expected from applying more irrigation applications. Crop insurance is
strongly preferred at lower irrigation levels.