Major Crops Market Risk Based on Value at Risk Model in P.R. China

Chinese farmers faced price volatility risk of major agricultural crops. The main purpose of this article is to compute and determine exactly the sizes and degrees of major crops market risk. The market risk analysis of major crops such as coarse grain rice, wheat, corn, cotton and soybean are determined using the VaR (Value at Risk) model. The practical consequences indicated that the normal distribution model is not appropriate used in evaluating the major crops market risk due to various degrees of market risk in various crops such as the cotton and soybean crops with higher levels of market risk, while the coarse grain rice with the medium risk level and finally the corn and wheat with lower levels of market risk. According to the results, the crops having similar characteristics belong to the same level of market risk. Therefore it is essential to accomplish the market risk management system to monitor the risk of major crops by introducing various kinds of products. This ensures the competency, accuracy and decreases significantly the cost of market risk management.