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Using USDA Forecasts to Estimate the Price Flexibility of Demand for Agricultural Commodities

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  • Michael K. Adjemian
  • Aaron Smith

Abstract

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. Copyright 2012, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 94 (2012)
Issue (Month): 4 ()
Pages: 978-995

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Handle: RePEc:oup:ajagec:v:94:y:2012:i:4:p:978-995

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Cited by:
  1. Aaron Smith, 2012. "Comment on "Bubbles, Food Prices, and Speculation: Evidence from the CFTC’s Daily Large Trader Data Files"," NBER Chapters, in: The Economics of Food Price Volatility National Bureau of Economic Research, Inc.
  2. Adjemian, Michael & Janzen, Joseph & Carter, Colin & Smith, Aaron, 2014. "Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement," Economic Research Report 167369, United States Department of Agriculture, Economic Research Service.
  3. Bruce A. Babcock & Wei Zhou, 2013. "Impact on Corn Prices from Reduced Biofuel Mandates," Center for Agricultural and Rural Development (CARD) Publications 13-wp543, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  4. Cáceres-Hernández, José Juan & Martín Rodríguez, Gloria & González Gómez, José Ignacio & Nuez Yánez, Juan Sebastian, 2013. "Canary banana exports. Are product withdrawal decisions rational?," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 13(2).

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