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The Dixit-Pindyck model was applied to examine the hypothesis that uncertainty associated with grapefruit production costs and returns is an important determinant of Texas grapefruit growers' investment behavior. Freezes, price variability, and the effects of expanded trade were analyzed as risk factors. An investment decision rule based on a net-present value calculation would approve a 25-year commitment to a 20-acre grapefruit grove, given a 6-percent discount rate. The modified hurdle rate, calculated using an ex ante version of the Dixit-Pindyck model, is 24 percent. The major source of the risk borne by Texas grapefruit investors is from freezes, rather than from expanded trade.
This study adopted the scaling approach to examine the impacts of inventories on tuna auction prices in Japan using the Rotterdam inverse demand system. The inclusion of two inventory variables in the model only increases the number of parameters by two. Results indicate that frozen tunas are more likely to be close substitutes, fresh and frozen tunas of the same species are also likely to be substitutes, and inventory had significant impacts on auction prices.
Using optimization techniques in a Simulation framework, this study demonstrates the synergy between risk balancing and alternative strategies in effectively reducing risk under changing farm conditions. Highly risk-averse farmers tend to prefer integrated risk-management plans, based on the diversification principle, that yield offsetting combinations of the risk-reducing benefits of most strategies and the profit-generating capacities of the others. The greater appeal of a more diversified plan usually downplays the risk balancing strategy as the farm utilizes credit reserves to implement other production and marketing plans considered essential to Overall risk reduction. The farm, however, still realizes overall, though more regulated, reduction in its financial risk position.
In many parts of the U.S., beef cattle production is a large sector of the agricultural economy, yet few of the cattle are stockered; instead the production is focused on cow-calf operations only. Restricting their Operation to only the first phase of beef production may be limiting the cattle owners’ profit potential. This paper examines the opportunities for Operators to earn additional profit from stockering cattle. Using a representative risk-averse producer, a decision set with seven possible marketing strategies is evaluated for the optimal decision in a Bayesian framework which allows for price and production risk. We find that in many instances retaining the cattle for stockering is a superior decision when done in conjunction with specific hedging strategies utilizing options and futures contracts.
A Just-Pope model was developed to assess tillage, nitrogen, weather, and pest effects on risk for cotton grown after alternative winter cover crops. Yield risk for cotton after hairy vetch was less than for cotton with no winter cover when no nitrogen fertilizer was used to Supplement the vetch nitrogen. However, because cotton after vetch has a higher production cost, farmers growing conventionally tilled cotton may be slow to adopt because risk-return tradeoffs may be unacceptable under risk neutrality and risk aversion. For risk-averse farmers who have already adopted no tillage, cotton grown after hairy vetch is risk efficient.
Private investment in plant breeding has been increasing while public plant breeding has stagnated or declined. Moreover, research investment among crop commodities is uneven. Using a comprehensive survey of U.S. plant breeders from 1994, we use a simultaneous equations model to examine incentives and public-private tradeoffs in plant breeding research among 84 crop commodities. Allocation of private breeders among crops is strongly influenced by market size, hybrid seed technology, and ease of breeding improvement. In general, the allocation of public breeders does not appear to “crowd out” private breeders, but some competition may occur in applied breeding. Public breeding declines as private breeding increases on a commodity. Public breeding is also affected by market size, ease of breeding improvement, and political influence.
The willingness to plant identity preserved (IP) crops was examined using Mississippi soybean producers as an example. A contingent valuation framework was used to assess the impacts of offered premiums on a producer's probability of planting IP soybeans. Findings suggest that offered premiums significantly affect planting decisions. In addition, desire to learn more about IP production was found to increase the probability of planting, suggesting that desire to learn leads to experimentation. Finally, prior knowledge or experience planting IP crops significantly decreased the probability of planting.
The effect on housing prices of proximity to different types of parks is estimated using a unique data set of single-family homes sold between 1990 and 1999 in Greenville, South Carolina. While the value of park proximity is found to vary with respect to park size and amenities, the estimates from this study are larger than previous studies. The greatest impact on housing values was found with proximity to small neighborhood parks, with the positive impact of proximity to both small and medium-size parks extending to homes as far as 1500 feet from the park.
A model to value Federal Agricultural Mortgage Corporation (Farmer Mac) agricultural mortgage-backed securities (AMBS) is developed and numerically solved. The results suggest prepayment penalties currently being used by Farmer Mac reduce yields on AMBS considerably. Even with prepayment penalties, it can be advantageous for profit maximizing mortgagors to optimally prepay or even default on agricultural mortgages. The model is used to quantify prepayment and default risk by valuing the embedded options in the mortgages. Monte Carlo simulation is also used to determine the probability of optimal prepayment given the term structure assumption used to develop the model.
In this paper we seek to characterize the robustness of the ENSO/soybean price relationship and to determine whether it has practical economic content. If such a meaningful relationship exists, the implications could be profound for commodity traders and for public sector investments in climate forecasting capabilities. Also, the validity of economic evaluations of climate impacts and climate forecasts based on ENSO-price independence would come into question. Our findings suggest a relationship between interannual climate and soybean prices, although we are not able to attribute the relationship to ENSO or to say that ENSO is economically important.
Economists and others need estimates of future cash price volatility to use in risk management evaluation and education programs. This paper evaluates the performance of alternative volatility forecasts for fed cattle, feeder cattle, and corn cash price returns. Forecasts include time series (e.g. GARCH), implied volatility from options on futures contracts, and composite specifications. The overriding finding from this research, consistent with the existing volatility forecasting literature, is that no single method of volatility forecasting provides superior accuracy across alternative data sets and horizons. However, evidence is provided suggesting that risk managers and extension educators use composite methods when both time series and implied volatilities are available.
Woody plant encroachment restricts forage production and capacity to produce grazing livestock. Biophysical plant growth simulation and economic simulation were used to evaluate a prescribed burning range management technique. Modeling systems incorporated management practices and costs, historical climate data, vegetation and soil inventories, livestock production data, and historical regional livestock prices. The process compared baseline non-treatment return estimates to expected change in livestock returns resulting from prescribed burning. Stochastic analyses of production and price variability produced estimates of greater net returns resulting from use of prescribed burning relative to the baseline.
Farmers are interested in knowing whether applying inputs at variable rates across a field is economically viable. The answer depends on the crop, the input, their prices, the cost of variable rate technology (VRT) versus uniform rate technology (URT), and the spatial and yield response variability within each field. Methods were investigated for determining the range of spatial variability over which the return to VRT covers its additional cost compared with URT in fields with multiple management zones. Models developed in this article, or variants thereof, could be used to help farmers make the VRT adoption decision.
Profitability of using alternative protein sources in broiler feed is investigated through the development of a two-stage mathematical program that optimizes broiler production. A case study of peanut meal vs. soybean meal is examined. Value of marginal product concepts incorporated in this model permit analysis of demand adjustments before decisions on the production process occur. Given reported input and output prices, results indicate that soybean meal is generally more profitable than peanut meal. Peanut meal can be more profitable at higher dietary protein levels fed to broilers processed into whole carcass or at relatively higher prices for soybean meal.
This article provides additional empirical evidence concerning the choice of the mule as the dominant draft animal in southern agricultural production in the latter 19th and early 20th century. While the mule was uniquely suited to the crops and climate of the region, two divergent arguments have been presented as to why the mule was the dominant draft animal in southern agricultural production. This research reevaluates these arguments and provides evidence that it was, in fact, the characteristics of this hybrid that made it the preferred draft animal for the South.
This study provides insight into the seasonality of Class I price differentials in the southeastern dairy industry. This is accomplished by analyzing monthly estimates of Class I price differentials obtained from the imputed price solution or dual solution of a generalized capacitated minimum cost network flow model of the dairy industry. A smooth seasonal pattern emerges through the monthly sequence with the lowest and highest estimated Class I price differentials occurring in April and September respectively. Miami and Jacksonville areas reach $ 5.40 and $ 4.36 per hundredweight in April and $ 6.79 and $ 5.53 per hundredweight in September.
This article seeks to demystify the competitive grant recommendation process of scientific peer review panels. The National Research Initiative Competitive Grants Program (NRICGP) administered by the U.S. Department of Agriculture-Cooperative State Research, Extension, and Education Service (USDA-CSREES) serves as the focus of this article. This article provides a brief background on the NRICGP and discusses the application process, the scientific peer review process, guidelines for grant writing, and ways to interpret reviewer comments if a proposal is not funded. The essentials of good grant writing discussed in this article are transferable to other USDA competitive grant programs.