Showing papers in "Applied Economic Perspectives and Policy in 1990"
TL;DR: In this article, it is argued that use of the normal distribution in crop insurance premia calculation cannot be justified by appealing to a Central Limit Theorem because crop insurance loss events are not independent.
Abstract: Crop insurance premia are shown to be sensitive to the distributional assumptions used in their calculation. Premia calculations based on normal distributions and beta distributions are compared. The normal distribution overstates the probability of loss relative to the beta distribution, and causes premia to be higher. It is argued that use of the normal distribution in crop insurance premia calculation cannot be justified by appealing to a Central Limit Theorem because crop insurance loss events are not independent, and that distributions with flexible representation of skewness would be more appropriate for crop insurance premia calculation.
58 citations
TL;DR: In this article, the role of basis expectations in measuring hedging effectiveness and the behavior of HE over time and space is discussed, and an HE conceptual model is developed which emphasizes the explicit specification of the hedger's basis expectation.
Abstract: There are two issues which form the central focus of the paper: a) the role of basis expectations in measuring hedging effectiveness (HE), and b) the behavior of HE over time and space. An HE conceptual model is developed which emphasizes the explicit specification of the hedger's basis expectation. Alternative soybean basis expectation (forecast) models are then evaluated. One of two models—both of which are simple and practical—perform best, depending on contract expiration. An analysis of HE during 1966 to 1983 indicates that there was an increase in the risk-shifting opportunity associated with the soybean futures market, and that the possibility of nonstationary (over time) and nonconstant (over space) hedging effectiveness needs to be considered when analyzing direct and cross hedges.
34 citations
TL;DR: In this paper, a rational expectations model is used to test spatial integration in regional slaughter steer markets and the results indicate limited integration and suggest a shift in spatial price linkages between regional cattle markets between 1980 and 1987.
Abstract: A rational expectations model is used to test spatial integration in regional slaughter steer markets. Market integration is examined using the concept of the law of one price across spatially separated markets. The approach and methodology used in this study overcomes three problems associated with standard approaches to testing market integration: simultaneity biases, an ignorance or misrepresentation of serial correlation, and a neglect of price expectations. Results indicate limited integration and suggest a shift in spatial price linkages between regional cattle markets between 1980 and 1987.
32 citations
TL;DR: In this article, a regression of net farm income per cow on computer use, years computer experience and other variables showed income increasing the first year of computer use and dropping and rising again by year four.
Abstract: Seven of 196 New York dairy farms used on-farm computers for accounting in 1984, rising to twenty-three in 1987. A regression of net farm income per cow on computer use, years computer experience and other variables showed income increasing the first year of computer use, dropping and rising again by year four.
28 citations
TL;DR: In this paper, the responsiveness of futures market prices for live hogs, live cattle, and feeder cattle to economic information contained in the USDA livestock inventory reports was examined, showing that the reports do not exert a persistent downward or upward influence on futures prices.
Abstract: This study examines the responsiveness of futures market prices for live hogs, live cattle, and feeder cattle to economic information contained in the USDA livestock inventory reports. Event study methodology is employed to test for persistent biases in market price changes around inventory report release dates. Few significant abnormal returns are detected in livestock futures markets following the quarterly inventory report releases, suggesting that the reports do not exert a persistent downward or upward influence on futures prices. Increases in return variability around report releases suggest that the reports provide new information to the market. Sustained high variability in the live hog futures market relative to the cattle markets following report releases suggests that less information is available for the hog market.
24 citations
TL;DR: In this paper, the use of marketing information by cash grain farmers was examined and factors which influence farmers' perceptions of the "adequacy" of their marketing information supply were examined.
Abstract: The objective of this research is to better understand the use of marketing information by cash grain farmers. In particular, factors which influence farmers' perceptions of the "adequacy" of their marketing information supply are examined. Statistical analyses of a random sample of Ohio cash grain farmers were employed in these evaluations. Radio broadcasts and general farm magazines were the two marketing information sources most frequently cited as useful. Highly formalized and marketing specific sources such as marketing consultants, commercial advisory newsletters and computerized information sources were cited relatively infrequently. Radio and television broadcasts were more frequently cited as the ‘most useful’ source of marketing information by older farmers and operators of small farms than by their counterparts. Marketing professionals were cited as ‘most useful’ more frequently by operators of larger farms and operators with at least some college education. A multivariate logit analysis was used to examine the joint effect of operator, farm and information source characteristics on information adequacy evaluations. The probability of an "adequate" evaluation was positively influenced by total farm information expenditure, the use of time-diversified marketing of grain from storage facilities, and the use of marketing consultants, brokers or commercial advisory newsletters as the primary source of marketing information.
22 citations
TL;DR: In this article, a regional model of U.S. milk supply response is specified and estimated, and the results suggest that, while being very inelastic in the short run, milk supply tends to be elastic in the longer run.
Abstract: A regional model of U.S. milk supply response is specified and estimated. The results suggest that, while being very inelastic in the short run, milk supply tends to be elastic in the longer-run. Also, the effects of milk price or feed price on milk production are found to vary across regions. This indicates that dairy pricing policy and feed grain policy do affect the regional evolution of U.S. dairy production.
20 citations
TL;DR: In this article, the economic damages imposed on small rural communities when groundwater becomes contaminated are estimated for communities typical of rural Michigan with a population of less than 5,000 people and an average household income of $40 to $330 per household.
Abstract: Procedures are developed for estimating the economic damages imposed on small rural communities when groundwater becomes contaminated. Net economic damages are the sum of producer and consumer surplus. In the case of nitrate contamination, annual damages for communities typical of rural Michigan range from $40 to $330 per household. Damage levels within this range depend on nitrate level, average household income, community size, climatic characteristics, and the selected treatment alternative.
17 citations
TL;DR: In this paper, a portfolio analysis was used to determine the optimal investment into alternative types of Kansas farms by nonfarm investors, and it was shown that swine and irrigated crop farms have earned competitive return rates with common stocks and T-Bills from 1973-1985.
Abstract: A portfolio analysis was used to determine the optimal investment into alternative types of Kansas farms by nonfarm investors. Dairy and crop farms would enter the optimal portfolio if asset values would fall by 4.8 percent and 31.3 percent, respectively. Study results show that swine and irrigated crop farms have earned competitive return rates with common stocks and T-Bills from 1973–1985. Results suggest that many Kansas farmers would have been better off with less debt. Arrangements to transfer nonfarm equity into agriculture will continue to be an area needing study.
14 citations
TL;DR: The survey results indicate general support for the current agricultural commodity programs Contentious issues include conservation and environmental policies, production risk and crop insurance, and international trade Multinomial logit analysis reveals statistical relationships between operator characteristics (eg age, education, farm size) and policy views Self-interest is found to be a determinant of operator opinion by sales class as mentioned in this paper.
Abstract: Results from a recent survey concerning Kansas farm operator opinions on farm and public policy views are presented and analyzed The survey results indicate general support for the current agricultural commodity programs Contentious issues include conservation and environmental policies, production risk and crop insurance, and international trade Multinomial logit (regression) analysis reveals statistical relationships between operator characteristics (eg age, education, farm size) and policy views Self-interest is found to be a determinant of operator opinion by sales class
13 citations
TL;DR: In this article, the authors investigate grain price relationships in the north central region by analyzing weekly prices for corn and soybeans at cash and futures markets, showing that the two markets are not a constellation of one united grain market.
Abstract: This paper investigates grain price relationships in the north central region by analyzing weekly prices for corn and soybeans at cash and futures markets. First differences in cash prices are compared statistically to first differences in futures prices. Next, the relationship of spatial basis changes between cash market locations is analyzed. The results indicate that cash and futures markets are not a constellation of one united grain market. Identifiable differences in price relationships exist across markets and time periods. The results have implications for hedging strategies as well as for consideration of the performance of Chicago as a delivery location for futures contracts.
TL;DR: In this paper, the authors examined the extent to which stochastic variation in crop yields and erosion rates affect the economic feasibility of, and farmer's willingness to adopt, minimum and no tillage in a northern Idaho watershed.
Abstract: This paper examines the extent to which stochastic variation in crop yields and erosion rates affect the economic feasibility of, and farmer's willingness to adopt, minimum and no tillage in a northern Idaho watershed. Stochastic variation in yield is evaluated by sampling an empirical frequency distribution of the ratio of yields between conservation and conventional tillage. Variability in yield due to tillage system and weather are separated from variability caused by soil type and management. Stochastic variation in erosion rates is determined by sampling the distribution of erosion prediction errors for the Universal Soil Loss Equation. Expected utility maximization is used to identify the optimal choice of tillage systems for different risk preferences. Stochastic variation in yield due to tillage practice and rainfall was found to have a proportionately greater effect on yield than errors in predicting erosion rates. For the soils, crops and land treatment practices evaluated, risk averse farmers would prefer conventional tillage to minimum and no tillage.
TL;DR: In this paper, the authors compared the financial characteristics of North Dakota farmers belonging to a recordkeeping program and those randomly surveyed by USDA Association members had significantly different financial characteristics as compared to average farmers in the state Member farms had substantially more acreage, hired labor, gross income, expenses, assets and liabilities.
Abstract: Participation in a farm management association enhances members' recordkeeping abilities and provides standards of performance to measure achievement However, these data can only be generalized to broader populations of farmers if association members are a representative sample This study compares the financial characteristics of North Dakota farmers belonging to a recordkeeping program and those randomly surveyed by USDA Association members had significantly different financial characteristics as compared to average farmers in the state Member farms had substantially more acreage, hired labor, gross income, expenses, assets and liabilities Equity levels on recordkeeping farms were higher but profitability and returns to equity were statistically lower
TL;DR: In this article, an asymmetric U-shaped cost curve was used to find size economies in Iowa school districts, and most size economies were achieved at around 800 to 900 pupils with an average cost of $2,952 per pupil and 2,442 pupils.
Abstract: This study found size economies in Iowa school districts. An asymmetric U-shaped cost curve provided the best fit. Costs were minimized at $2,952 per pupil and 2,442 pupils, but most size economies—within $100 per pupil—were achieved at 800 to 900 pupils. Implications for school reorganization were discussed.
TL;DR: In this paper, a short run model of milk production is developed to analyze the farm-level incentives to adopt bGH, and the model identifies: (1) why farmers may not have the incentive to adopt the new technology; and (2) if farmers adopt BGH, they may not even have the economic incentive to produce at the levels obtained in test studies.
Abstract: Economic simulation studies of the effects of bovine growth hormone (bGH) on the dairy industry usually assume that producers will have the incentive to adopt bGH and that aggregate milk supply will increase. Based on the description of per-cow milk yield response to bovine growth hormone (bGH), a short-run model of milk production is developed to analyze the farm-level incentives to adopt bGH. This analysis emphasizes that the incentives to adopt a new technology greatly depend on how it alters the existing production environment. Because higher levels of energy are needed in the cow to attain greater levels of production made possible with bGH, those farmers who can most easily and inexpensively expand energy levels in the cow will be most likely to adopt. The model identifies: (1) why farmers may not have the incentive to adopt the new technology; and (2) if farmers adopt bGH, they may not have the economic incentive to produce at the levels obtained in test studies.
TL;DR: In this article, the authors examine the role of various income sources in determining the distribution of total income and understand the implications of the implementation of specific policies on the well-being of farm families.
Abstract: A second objective of this study is to examine the role of various income sources in determining the distribution of total income. This is important in order to understand the implications of the implementation of specific policies on the well-being of farm families. For example, increased availability of human capital development for off-farm employment could be significant for smaller operations if they tend to use this market to supplement low-farm related incomes.
TL;DR: In this article, a second degree stochastic dominance criterion was used to compare three treatments for control of insects in stored grain, and it was found that in over 80% of the comparisons, a protectant (malathion) was in the efficient set, which means that it could be selected by a risk-averse individual.
Abstract: The quantity of grain in storage has been exceptionally high through much of the early 1980s. As a result, the effect of insect activity on quality of grain that is stored for long periods of time has become a major concern. The purpose of this study was to analyze producer choices regarding treatments for control of insects in stored grain. A second degree stochastic dominance criterion was used to compare three treatments. In more than 80% of the comparisons, a protectant (malathion) was in the efficient set, which means that it could be selected by a risk-averse individual. In over 65% of the comparisons, a minimum treatment was in the efficient set. Treatment by fumigating was selected to remain in the efficient set in only 34% of the comparisons. Data from this study (before the implementation of the May 1988 regulations of the Federal Grain Inspection Service regarding insect infestation and insect-damaged kernels) suggest that elevator discounts were not consistent nor large enough to encourage farmers to incur large costs for controlling insects.
TL;DR: In this article, the authors examined whether the regional demand for softwood lumber in the United States is dependent on market factors including the price of softwood wood, the prices of other building materials and economic activity, as measured by housing starts.
Abstract: This study examines whether the regional demand for softwood lumber in the United States is dependent on market factors including the price of softwood lumber, the price of other building materials and economic activity, as measured by housing starts. The empirical results suggest that the quantity of softwood lumber demanded does vary in response to fluctuations in the softwood lumber price in three of the four regions considered and it does change with movements in the other explanatory factors (e.g., the price of other building materials and housing starts) in all regions. Finally, in an effort to explain the insignificance of the softwood lumber price in explaining changes in softwood lumber demanded in the West region, regression diagnostics are used. The analysis, however, sheds little light on the result.
TL;DR: In this article, a simulation model is used to evaluate the risks and returns to feedlot operators and cattle owners in the upper Midwest that occur with alternative types of custom cattle feeding contracts.
Abstract: A simulation model is used to evaluate the risks and returns to feedlot operators and cattle owners in the upper Midwest that occur with alternative types of custom cattle feeding contracts. Historical price data were combined with seasonal performance data to analyze the seasonal incentives for different risk-sharing arrangements. Seasonal returns varied significantly both as to mean and variance and point out the need for seasonally varying contract terms. Feedlot owners are significantly better off with yardage fee contracts as opposed to cost-of-gain contracts in terms of return variance, whereas cattle owners are only slightly better off with guaranteed cost-of-grain contracts.
TL;DR: In this paper, the impact of the government commodity program, crop insurance, disaster aid, and optional paid land diversion on net return risk for corn and soybeans is examined, and most preferred risk management strategies include crop insurance for corn in northeast Kansas whether disaster aid is available or not.
Abstract: The impact of the government commodity program, crop insurance, disaster aid, and optional paid land diversion on net return risk for corn and soybeans is examined. Results indicate that most preferred risk management strategies include crop insurance for corn in northeast Kansas whether disaster aid is available or not. Crop insurance for soybeans is generally not preferred. Participation in the optional paid diversion program is a preferred risk management strategy for extremely risk averse producers. Willingness to pay analysis indicates that moderately and strongly risk averse producers would be willing to pay more for crop insurance when disaster aid and the optional paid land diversion for corn are not available. Risk averse corn producers would be willing to pay more for crop insurance than disaster aid as well.
TL;DR: In this paper, an analytical approach, reflecting the impact of the Export Enhancement Program (EEP) on global wheat trade, was developed and incorporated within a nonspatial equilibrium model of world wheat trade.
Abstract: A major goal of the Export Enhancement Program (EEP) was to expand U.S. exports. This objective was empirically tested in this study for the case of wheat. An analytical approach, reflecting the impact of the EEP on global wheat trade, was developed and incorporated within a nonspatial equilibrium model of world wheat trade. The results suggest that the EEP expanded U.S. wheat exports 20 percent in 1986/87, but only 7 percent in 1987/88. Most of the actual expansion occurred in 1987/88 and was due to other factors.
TL;DR: In this paper, a stratified random sample of grain elevators supplied grain bid and transportation cost data to analyze the effects of various rail transportation costs on grain elevator handling margins for corn, soybean and wheat.
Abstract: A stratified random sample of grain elevators supplied grain bid and transportation cost data. These data are used to analyze the effects of various rail transportation costs on grain elevator handling margins for corn, soybean and wheat. Factors affecting transportation costs such as rail contracts, mileage allowances, and transportation mode are shown to have significant impacts on elevator handling margins and consequently need to be considered in any analysis attempting to explain grain handling margins.
TL;DR: This paper explored the effect of external debt on LDC wheat imports using time series data (1970-1985) for six wheat importing nations and tested a model which allows for increasing government intervention as the capacity to import decreases.
Abstract: Questions have been raised recently concerning the potential threat of a reduced ability to import in nations where external debt is rapidly increasing. The central purpose of this paper is to explore to what extent external debt is having on LDC wheat imports. A model, which allows for increasing government intervention as the capacity to import decreases, was tested using time series data (1970–1985) for six wheat importing nations.
TL;DR: In this paper, the authors compared estimated balance sheet and income statements using USDA and FCRS constructs with actual farm records for farms participating in the Farm Business Farm Management (FBFM) record-keeping program.
Abstract: The farm sector balance sheet, income statement, and the Farm Costs and Returns Survey (FCRS) data are utilized to evaluate the financial conditions of American agriculture. This study compares estimated balance sheet and income statements using USDA and FCRS constructs with actual farm records for farms participating in the Farm Business Farm Management (FBFM) record-keeping program. Results suggest a tendency for USDA and FCRS to report lower amounts of both assets and liabilities than FBFM records show, but this is explained in part by the inclusion of only farm business assets in the FCRS and USDA data sets. Income estimates do not vary greatly between the data sources.
TL;DR: In this article, a simple model incorporating the cropland allocation effects of entry into the federal Conservation Reserve Program (CRP) is developed to estimate the reduction in aggregate crop acreage brought about under two program alternatives: (1) the "base bite," which requires a reduction in a farm's commodity base as a condition of CRP entry (the current law) and (2) no base bite, which for planting reduction purposes would rely upon a "displacement" of acreage actually available for planting.
Abstract: This paper examines the policy instrument by which a land retirement program designed primarily for conservation purposes attempts to reduce surplus commodity production as well. A simple model incorporating the cropland allocation effects of entry into the federal Conservation Reserve Program (CRP) is developed to estimate the reduction in aggregate crop acreage brought about under two program alternatives: (1) the "base bite," which requires a reduction in a farm's commodity base as a condition of CRP entry (the current law) and (2) no base bite, which for planting reduction purposes would rely upon a "displacement" of acreage actually available for planting. Data from the first eight rounds of CRP bidding (through February 1989) show that the base bite reduces CRP entrants' aggregate annual program crop plantings by 14.9 million acres under 1987 program rules, while displacement would have reduced plantings by 13.1 million acres. Under "1990 rules" (no set-aside required for participation), the base bite provision would reduce plantings by 19.6 million acres. Displacement is unaffected by set-aside levels. If the base bite were removed, the concomitant lower opportunity costs of entry would result in either an increase in CRP acreage or a decrease in budget outlays, depending upon program administration.
TL;DR: In this article, Monte Carlo simulation is used to examine the effects of various financial relationships upon the growth rate in equity for farms with different levels of debt, and a method is proposed for establishing financial relationships whereby comparable growth rates for farms having different debt will occur.
Abstract: Monte Carlo simulation is used to examine the effects of various financial relationships upon the growth rate in equity for farms with different levels of debt. A method is proposed for establishing financial relationships whereby comparable growth rates for farms with different debt will occur. The results demonstrate that financial relationships are important when comparing farms with different debt and when developing inferences about policy alternatives at the farm level.
TL;DR: In this paper, a multi-sectoral input-output linear programming model is developed to measure the cross industry effects of a 10 percent increase in feed grain exports on the agricultural sector and the Cornbelt economy.
Abstract: Large feed grain export variations adversely impact the agricultural sector and the Cornbelt economy. A multi-sectoral input-output linear programming model is developed to measure the cross industry effects of a 10 percent increase in feed grain exports. Base model, elastic labor supply, and full employment labor supply results are presented.