Academic journal article Journal of Agricultural and Applied Economics

Crop Supply Response under Risk: Impacts of Emerging Issues on Southeastern U.S. Agriculture

Academic journal article Journal of Agricultural and Applied Economics

Crop Supply Response under Risk: Impacts of Emerging Issues on Southeastern U.S. Agriculture

Article excerpt

In this paper we consider factors that affect both crop prices and yields in order to examine supply responses of major crops in the Southeast. Due to the variable nature of crop production in the Southeast, previous studies that ignore price and yield risk may fail to capture one of the salient features of the region's agriculture. Our results indicate supply elasticity values for corn, cotton, and soybeans of approximately 0.670, 0.506, and 0.195, respectively. Compared with the results of studies in other regions, corn and cotton acres respond more to price changes and soybean acres respond less to price changes.

Key Words: acreage supply, crop supply response model, risk analysis, Southeast U.S. agriculture

JEL Classifications: Q12, Q13, Q16

Cotton, soybeans, and corn are the three major row crops in the southeast1 United States. These crops contribute not only to the region's agricultural economy, but are also important nationally. In 2007, planted cotton acreage in the Southeast totaled 4.48 million acres and accounted for about 41 % of U.S. cotton acreage and 39% of its total value. In contrast, the share of acreage and value of corn and soybeans is smaller compared with other major corn and soybean regions. Nevertheless, the combined total acreage of corn and soybeans in the Southeast is still over 17 million acres and increasing. A large set of agribusiness input suppliers and output processors associated with crop production also exist, sometimes with significant investments in commodityspecific infrastructure such as cotton gins. Crop acreage in the Southeast tends to fluctuate over time, with these fluctuations becoming more pronounced in recent years. In 2007 total Southeast corn acreage increased 2.57 million acres, a jump of 86% from 2006. Over the same period, planted cotton acres decreased 34% (Figure 1). A variety of factors, including improved crop varieties and price signals, contributed to these relatively large shifts in crop acreage. High fuel prices and increases in the demand for corn to produce ethanol have been widely noted as contributing factors in recent years (Elobeid and Tokgoz, 2008; Malcolm, Aillery, and Weinberg, 2009; Sumner, 2009). As corn prices increase, incentives for farmers to grow corn also increase relative to the incentives to produce cotton. Consequently, acreage allocations switch from one crop to another.

Compared with other regions, historical data also indicate that crop acreage in the Southeast may experience more variability than other regions. For instance, compared with corn acreage in Arkansas, Louisiana, Mississippi, and Tennessee from 1980-2007, the standard deviation of the percentage change in acreage in Iowa is 13.68 while in the preceding four states area it is 19.46, although Iowa likely experienced a larger absolute change. The variability in farmers' planting decisions, as reflected in the observed crop acreage changes, warrants further investigation because of the implications for farm policies. Shifts in crop acreage not only affect crop producers but also impact the entire local agribusiness industry, particularly those industries with crop-specific investments. As a major cotton-producing region, the extensive infrastructure investments in the Southeast have few alternative applications. For example, machinery to harvest cotton is not useful for other crops, and post-harvest processing facilities such as gins are only capable of handling cotton (Blaney, 2010). To wit, over 100 active gins in Mississippi and the surrounding area depend on cotton production (Boyd and Hudson, 1999). As cotton producers switch to other crops, the impact on cotton gins may be costly. Therefore, understanding crop supply response in the Southeast may prove valuable for government officials who assess policy options such as commodity programs or renewable fuels policies. Furthermore, economists will find these results relevant when assessing the economic consequences of producers' crop planting decisions on the agribusiness industry. …

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