Worldwide Acreage and Yield Response to International Price Change and Volatility : A Dynamic Panel Data Analysis for Wheat, Rice, Corn, and Soybeans

This article estimates a worldwide aggregate supply response for key agricultural commodities — wheat, rice, corn, and soybeans — by employing a newly-developed multi-country, crop-calendar-specific, seasonally disaggregated model with price changes and price volatility applied accordingly. The findings reveal that, although higher output prices serve as an incentive to improve global crop supply as expected, output price volatility acts as a disincentive. Depending on the crop, the results show that own-price supply elasticities range from about 0.05 to 0.40. Output price volatility, however, has negative correlations with crop supply, implying that farmers shift land, other inputs, and yield-improving investments to crops with less volatile prices. Simulating the impact of price dynamics since 2006, we find that price risk has reduced the production response of wheat in particular — and to a lesser extent, rice — thus dampening price incentive effects. The simulation analysis shows that the increase in own-crop price volatility from 2006-2010 dampened yield by about 1-2% for the crops under consideration