Using USDA Forecasts to Estimate the Price Flexibility of Demand for Agricultural Commodities
2012
Adjemian, Michael K. | Smith, Aaron
We estimate the general equilibrium price flexibility of demand for corn and soybeans using monthly changes in expected supply published by the USDA. Our estimates reflect the demand response to a one‐year supply shock and thus correspond to the inverse demand elasticity. We derive the conditions under which our estimates are consistent, and we show how demand flexibility varies by season, inventory, time horizon, and demand composition. At average inventory and without accounting for corn‐ethanol use, we obtain price flexibility estimates of −1.35 and −1.03 for corn and soybeans, respectively. Current corn‐ethanol production levels are associated with much larger absolute flexibilities for both commodities.
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