Statistical Research

Businesses are faced with uncertain decisions on a regular basis.   Dilemmas businesses can face range from salary amount for employees to potential layoffs.   Farmers are faced with the uncertain decision to invest or not invest in crop insurance policy.   Purchasing a crop insurance policy is a risk management tool enabling “farm families to meet their financial obligations, both business and personal, and helps ensure the survival of the farm business in times of low production and damaging weather” (White, n.d., para. 2).   To determine if purchase crop insurance farmers need to compare the expected benefits from the insurance to the annual premium costs and the effects of the long-run average profit.
One of the most common forms of crop insurance is Multiple Peril Crop Insurance (MPCI) which “guarantees a minimum average yield per acre for the insured crop” (Johnson, 1988, p. 2).   MPCI covers most crops with unavoidable productions losses caused by but not limited to drought, hail, wind, frost, flood, insect infestation, plant disease, and fire.   Farmers can use inductive reasoning to acknowledge the benefits of MPCI by saying crops grow outside, Mother Nature constantly changes, thus crops outside can be affected by Mother Nature.   Especially with the large range of variables that can ruin a crop.  
In the long-run, weather, fire, or insets will skew a farmer’s yield per acre.   The farmer will evaluate the risk versus reward of MPCI by analyzing historical yields.   The first step is for the famer to evaluate their long-run average yield by calculating Olympic average by removing the highest and lowest yields in a 10 year period, and then calculate the average.   After establishing an expected range in possible yields the farmer may expect, a cash flow analysis will provide estimated figures showing the profit margins with or without MPCI.
To limit uncertainty, viewing the estimated projections in a cash analysis, farmers will be able to view net cash flow...