Incorporating Risk Considerations into the Estimation of Demand for Diesel Fuel by Crop Producers

A quadratic programming model was formulated to estimate diesel fuel demand by a representative risk averse crop producer. Data to estimate the demand function were obtained by varying energy prices, crop prices, and degree of risk aversion. Diesel fuel demand was not very responsive to energy price changes. Wheat and soybean prices as well as producer's attitude toward risk had greater impacts on fuel use than did energy prices. Increases in soybean and sorghum prices tended to increase diesel fuel use while increases in wheat prices and degree of risk aversion decreased diesel fuel use.