ABSTRACT

Production agriculturalists must manage both biological and financial resources to maintainprofitable operations. Since producers are price takers and are subject to yield variations due to uncertain weather, conditions, the added business risk needs to be offset with lower financial risks to maintain an acceptable level of total risk. However, this is not always possible given that additional term debt must often be incurred to keep up with technology that increases productivity. There exists an optimal level of total risk that allows producers to maintain a viable operation with an acceptable probability of failure. The objective of this study was to estimate the levels of business and financial risk for producers in the Texas High Plains. The distribution of net cash flows and term debt payments of producers were analyzed to estimate the relationship between business and financial risk. Results indicate a wide range of total risk for producers on the Texas High Plains. Also, business and financial risk varied considerably across producer.