The Risks Associated with Barley Production in North Dakota

Abstract

The market for barley has shifted from a demand for exports and livestock feed, to a demand for human food and alcohol production. Due to the crop qualities required for malting in the alcohol industry, barley is perceived to be a more financially risky crop to grow in comparison to other crops. Monte Carlo simulation was used to estimate the distributions of net return to labor and management for barley, hard red spring wheat, corn, soybean, and canola in the primary, North Central, and transitional, Central, crop reporting districts of North Dakota. Stochastic efficiency with respect to a function was used to rank the distributions based on a farm manager’s risk preferences. Results indicate that barley is not as risky to grow as farm managers perceive. However, soybeans were the dominant crop. Corn is dominant crop when a decision maker is risk neutral, but quickly diminishes as risk aversion increases.