James P. Houck

Supply Analysis for Corn in the United States: The Impact of Changing Government Programs

Acreage supply relationships for corn in the United States are analyzed for 1948–70. Emphasis is on the effect of changes in government policies because similar programs for acreage control and price support are the most likely form of future policies. A model for empirical evaluation of loan rates, support and diversion payments, and acreage restrictions is developed and tested. More than 95 percent of the variation in U.S. corn acreage during the study period can be associated with the selected policy variables. The approach suggested in this research appears to be applicable to other crops heavily influenced by government policy.

The Relationship of Direct Price Flexibilities to Direct Price Elasticities

In agricultural economics research, it is frequently easier to estimate direct and cross price flexibilities rather than price elasticities. However, elasticity estimates may be needed or wanted. The paper shows that, under rather general conditions, the reciprocal of the direct price flexibility is the lower absolute limit of the direct price elasticity. The departure of the true price elasticity from the flexibility reciprocal depends upon the strength of the cross effects of substitution and complementarity with other commodities.

The Price Responsiveness of U.S. Corn Yields

Production economics theory shows that the pro fit-maximizing output of a commodity depends, among other things, upon product and input prices. Supply functions consistent with this theory have been estimated for many agricultural crops both in the United States and elsewhere. However, the biological nature of the production process, the time lags involved between planting and harvest, and the generally extensive use of land and climate leads naturally to the separation of total crop production into acreage and yield components. Typically, acreage is viewed as the major decision variable with respect to input and output prices. Per acre yields are generally regarded as dependent upon technological trends, weather, and other more or less noneconomic influences. The recent work by Perrin and Heady is a good example of this approach. Only a little literature exists on attempts to measure the price responsiveness of crop yields (Guise, Hee, Krishna), although some recent methodological work can be found (Whitaker). This note concerns the price responsiveness of U.S. corn yields when both output and input prices are considered.

A Look at Flexibilities and Elasticities

Economists have developed a carefully reasoned network of theoretical restrictions applying to price and income elasticities of demand. Yet, because supplies of many farm-produced commodities are fixed in the short run, agricultural economists often find that price flexibilities are more useful and easier to measure empirically, especially in marketwide situations. Theoretical restrictions on demand elasticities imply a complete, largely unexplored set of corresponding restrictions among price flexibilities. These flexibility conditions apply to column sums, row sums, and cross-coefficient symmetry within a multicommodity flexibility matrix. As with elasticities, the theoretical relationships among price flexibilities have implications for applied research.

Price Elasticities and Joint Products

The price elasticity of a commodity from which two or more joint products are obtained in fixed proportions is, in general, a weighted harmonic average of the price elasticities of the joint products. The weights are the proportions of the basic commoditys total value attributable to sales of each joint product. When marketing and processing margins are considered, the relationships among the elasticities of the joint products and the basic commodity are consistent with the traditional theory of derived demand. These relationships may be useful to price analysts and commodity specialists interested in joint product problems.

Welfare Implications of Stabilizing Consumption and Production

Some economists are now urging the use of buffer stocks to help stabilize farm and food prices. Moreover, price stabilization has been shown to be socially beneficial from a theoretical point of view. Our purpose is to analyze the welfare implications of stabilized consumption and production and to compare them with the known implications of stabilized prices. It is shown that stabilized consumption is the least beneficial in its welfare implications. The relation between the gains from stabilization and the size of buffer stocks necessary to achieve stabilization also is analyzed. Finally, the presentation is extended to cover instability due to fluctuations in export demand.

A Statistical Model of the Demand for Soybeans

Two-stage least squares estimates of a six-equation model of the annual markets for U.S. soybeans and soybean products suggest that simultaneous measurement of important price-making forces is feasible when the joint product and multimarket aspects of soybeans, meal, and oil are considered. Domestic markets for meal and oil and the export market for beans are considered. Implied direct price flexibilities are −1.30 for farm level soybeans, −1.12 for meal at wholesale, and −.52 for oil at wholesale. Although the predictive value of the estimated model is not yet clear, the empirical results can be used to evaluate the nature and relative magnitude of adjustments in the soybean market as changes occur in market conditions, market structure, and government programs. Both the analytical method and empirical estimates may be useful to price analysts and commodity specialists.

Link between agricultural assistance and international trade

This paper investigates a central part of the argument that agricultural assistance by the United States to developing nations leads to diminished export markets for U.S. farmers. A sizeable cross section of low-income and lower-middle-income nations is used to provide statistical analyses of: ( 1) the link between agricultural productivity and economic performance, and (2) the link between economic performance and agricultural imports. The results show that a reasonably strong case can be made for the idea that advances in agricultural productivity are associated with longrun increases in imports of cereals and other agricultural products by less wealthy nations. The connection comes via the positive income effect of general economic development. For these countries, investments in agricultural development through successful assistance are not detrimental to U.S. farm export interests in the long run. They are generally beneficial. For middle-income nations, the case is less clear and more controversial. However, nothing in the cross-section data used suggests that farm productivity improvements in these nations is systematically threatening to U.S. agricultural trade in the long run.

Sound Judgment and Common Sense: The Professional Legacy of Fred Waugh

This year marks the initiation of the Frederick V. Waugh lecture program in commemoration of the professional contributions of Frederick V. Waugh. The program is sponsored by the Economic Research Service, U.S. Department of Agriculture and the American Agricultural Economics Association. The lecture will be presented each year at the annual meeting of the American Agricultural Economics Association and published in the December proceedings issue of the American Journal of Agricultural Economics. The following two papers are an introduction to Frederick V. Waugh and review of his professional career by James P. Houck and the inaugural lecture presented by Marc Nerlove.

Inflation, Portfolio Choice, and the Prices of Land and Corporate Stock: Discussion

The paper by Martin Feldstein presents a novel approach to asset pricing over time. It departs from the present value and discounted rate-of-return models familiar to most agricultural economists. By introducing differential tax rates, portfolio balance concepts, and uncertainty, it highlights demand-side forces which affect relative prices of land and other assets in the presence of general price inflation.