Date of Award
Agricultural Risk, Modern Portfolio Theory, Diversification
This project applies Modern Portfolio Theory to South Dakota agriculture to determine whether farmers can both increase their return and decrease their risk through their choice of crop. An econometric model is used to predict state-wide crop revenue for different “portfolios” which each involve planting a different proportion of the eleven crops grown in the state. These predictions are then evaluated for their respective risk and return, measured by average revenue and standard deviation of revenue. Those portfolios which have a higher average revenue and a lower standard deviation of revenue than South Dakota experienced historically are then analyzed to determine their feasibility. Based on this analysis, it appears South Dakota could have reduced its agricultural risk and increased its return by either planting corn and wheat in the acres used to plant barley, or by planting corn and wheat in the acres used to plant sorghum.
Ladenburger, Lucas M., "Betting the Farm: An Application of Modern Portfolio Theory to South Dakota Agriculture" (2020). Honors Thesis. 90.