We analyze the effects of crop insurance and the Marketing Loan Program on
optimal nitrogen use and acreage allocation for a case cotton–sorghum farm
in Texas. A mathematical programming model is used to solve for the optimal
nitrogen fertilizer rate, crop acreage allocation, coverage level, and price
election factor, along with participation in the crop insurance and the
Marketing Loan Program for both crops. Results show that depending on the
crop and farmer risk aversion, these federal risk management programs
increase or decrease optimal fertilizer rates –6% to 3%, increase optimal
cotton acreage 94% to 144%, and decrease sorghum acres up to 50%.