Acreage Elasticities for Corn and Soybeans

Because corn (Zea mays L.) and soybeans [Glycine max (L.) Merr.] are the top two cash crops in the USA, the choice between planting corn and soybeans plays a crucial role in determining the impact of policy changes on the U.S. agricultural sector. This study examined the joint decisionmaking process between corn and soybeans among U.S. farmers, the effects of dynamic processes for anticipating future prices and yields, and the impact of government programs on the substitutability of soybeans for corn in planting decisions. The effects of past planting decisions, productivity, and net returns, as well as shifts in commodity program parameters, are considered in a systematic framework for modelling the behavior of corn and soybean acreage, yield, and market prices. These responses are constrained in the model by the availability of land appropriate for crops, which is fixed in the short term. The increased flexibility of program provisions for permitting movements between program and nonprogram crops (such as between corn and soybeans) for the period covered by the 1973 farm legislation produced elasticities of supply that were 80% and 13% higher for corn and soybeans than for the period covered by the 1985 Food Security Act, widely viewed as the least flexible legislation. Estimated own-price and cross-price elasticities exhibited the expected signs and fell within the range of earlier analyses on this topic. Incorporating both corn and soybeans in a dynamic joint supply-response framework provides useful information in estimating the effects of policy changes on the crucial relationship between these key crops in terms of acreage allocation. Research QuestionCrop farmers in the USA are faced with the decision of allocating their land between several crops, particularly corn and soybeans. Corn and soybeans grow well under similar types of conditions (soil, temperature, rainfall). Corn and soybeans can be complements or substitute for one another because of the N-fixing capacity of soybeans and the fixed amount of suitable cropland. The primary objective of this research was to assess the sources of acreage adjustment and the impact of changes in the U.S. agricultural commodity program on the U.S. crop sector, in order to formulate a more effective set of agricultural policies. The experience of farmer's ability to shift from program crops (corn) to nonprogram crops (soybeans) is examined in light of the flexibility provisions of the 1990 Food, Agriculture, Conservation, and Trade Act (FACTA). Literature SummarySeveral studies have examined supply responses and acreage allocation models for major U.S. crops. This study is based on a dynamic corn acreage model, extended to deal with both corn and soybeans. These two crops were selected because they lie at the heart of the commodity program flexibility debate. The use of a dynamic model permits examination of a crop relationship which can include using multi-year crop rotations or taking advantage of the 15 or 25% flexibility permitted on program base acreage in the 1990 FACTA. Study DescriptionThe cropping decisions are treated as exogenous in this study, and corn and soybean acreage are jointly determined. A two-period production cycle is assumed in order to allow farmers to rotate corn with soybeans and other crops. A dynamic element is incorporated by making current land productivity (yield), planted area, and expected market price functions of past values. Production is constrained by cropland availability, which is fixed once the growing season begins but can be varied, by land acquisition or rental, between seasons. A seven-equation econometric model was estimated, depicting corn and soybean acreage, expected corn and soybean yields, expected corn and soybean prices, and a total cropland equation. The study was conducted using national-level corn and soybean production and price data from between 1953 and 1989. Since flexibility is not a regular program parameter but rather a reflection of how the commodity programs tend to inhibit movement between crops, it is represented on an adhoc basis, through an interaction with relative prices. Full scientific article from which this summary was written begins on page 529 of this issue. Applied QuestionDo the availability of less restrictive commodity programs enhance movement between crops and increase the acreage responsiveness for the crop in question? In general, program flexibility only becomes a factor in a disequilibrium situation, such as when program parameters establish incentives which override agronomic and market considerations, causing producers to keep land in program crops that otherwise would shift to other crops or rotate with nonprogram crops. The relaxed acreage restrictions under the 1973 Agriculture and Consumer Protection Act led to a larger acreage response to price changes (greater acreage elasticity) than was seen under other agricultural legislation, such as the 1985 Food Security Act, which provided severe penalties for movements out of base acreage. The own-price elasticity for corn acreage showed the greatest difference (80% higher), though the own-price soybean acreage elasticity and cross-price elasticities were enhanced also. RecommendationAlthough not covered in the study period, it is clear that the normal and optional flex provisions of the 1909 FACTA will give farmers a greater ability to respond to changes in market conditions. This change in farm legislation clearly lies in the direction of greater market orientation, as demonstrated in farmer's decisions between planting corn and soybeans. If greater market orientation is to be asserted as an important goal in agricultural policymaking, then the flexibility provisions should be maintained. Fig. 1Relative elasticities between high- and low-flexibility policy regimes.