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Implications of U.S. Policy Changes for Corn Price Variability

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  • Paul C. Westcott

Abstract

U.S. agricultural commodity policy has undergone large changes over the last ten to fifteen years, particularly regarding supply management programs and governmental stocks programs. In this article, I address die question of whether these policy changes have made the agricultural sector more or less variable, particularly for prices. Corn sector simulations under alternative policy environments are performed to analyze the short- and long-run responsiveness to assumed yield shocks. In the current policy setting with lower stocks, shocks result in larger initial price impacts than if stocks were larger. However, greater supply responsiveness from increased planting flexibility of current law combined with the initially greater price impacts can result in lower price deviations over a multiyear, postshock adjustment period than occur in a higher stocks /lower supply response environment. Interestingly, the larger the negative yield shock, the lower the increment needed in the supply response elasticity in the lower stocks scenarios to result in equal postshock price deviations as occur in the higher stocks/lower supply responsiveness scenarios. This result illustrates the importance of the interaction of the supply response function with the magnitude of the price impacts in determining the ability of the sector to handle shocks and the speed at which it responds to shocks. For larger negative yield shocks, the supply elasticity increment needed in the lower stocks scenarios to equilibrate price deviations after the shock can be smaller because the initial price difference that the supply response function faces is larger.

Suggested Citation

  • Paul C. Westcott, 1998. "Implications of U.S. Policy Changes for Corn Price Variability," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 20(2), pages 422-434.
  • Handle: RePEc:oup:revage:v:20:y:1998:i:2:p:422-434.
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    File URL: http://hdl.handle.net/10.2307/1349999
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    Cited by:

    1. Peterson, Hikaru Hanawa & Tomek, William G., 2000. "Commodity Price Behavior: A Rational Expectations Storage Model of Corn," Working Papers 127682, Cornell University, Department of Applied Economics and Management.
    2. McPhail, Lihong Lu & Babcock, Bruce A., 2012. "Impact of US biofuel policy on US corn and gasoline price variability," Energy, Elsevier, vol. 37(1), pages 505-513.
    3. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Short-Run Price and Welfare Impacts of Federal Ethanol Policies," Center for Agricultural and Rural Development (CARD) Publications 08-wp468, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. Singerman, Ariel & Hart, Chad E. & Lence, Sergio H., 2012. "Revenue Protection for Organic Producers: Too Much or Too Little?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(3), December.
    5. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Ethanol, Mandates, and Drought: Insights from a Stochastic Equilibrium Model of the U.S. Corn Market," Center for Agricultural and Rural Development (CARD) Publications 08-wp464, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    6. Tyner, Wallace E. & Taheripour, Farzad, 2008. "Policy analysis for integrated energy and agricultural markets in a partial equilibrium framework," Transition to a Bio Economy Conferences, Integration of Agricultural and Energy Systems Conference, February 12-13, 2008, Atlanta, Georgia 48712, Farm Foundation.

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