John B. Penson

Measurement of Capacity Depreciation Based on Engineering Data

The widely used estimates of annual capacity depreciation for selected types of farm producer capital published by the US DA rest on the assumption that the amount of capital consumed annually equals a constant fraction of the existing capital stocks. This study demonstrates, through the use of agricultural engineering data, that the productive capacity of farm tractors deteriorates in a concave rather than the convex pattern suggested by present USDA estimates. The implications for studies estimating aggregate production functions based on factor shares or farm investment demand equations are discussed. Finally, recommendations for change to selected sector economic accounts are made.

Variance of Agricultural Prices, Industrial Prices, and Money

The relative uncertainty of agricultural prices and industrial prices with respect to the uncertainty of growth in the money supply are investigated utilizing multivariate ARCH and GARCH analysis. The conditional variances of agricultural prices were shown to dwarf the variances of industrial prices and the money supply. The relatively greater sensitivity of the conditional variance of agricultural prices to changes in the variance of the money supply than industrial prices found in this analysis provides a further perspective on the uncertainty confronting farmers, including the impacts of the monetary policy shock that precipitated the farm financial crisis in the early 1980s.

Economic Impacts of Chemical Use Reduction on the South

A growing segment of society is concerned about a myriad of health and environmental issues related to the use of pesticides and other agricultural chemicals. Despite the leveling-off of agricultural chemical use in the 1980s, chemical use in agriculture has come to be seen as a two-edged sword. On the positive side, agricultural chemicals have become the engine for world-wide productivity gains. These chemicals have contributed to increased yields per acre and have reduced waste in storage and distribution. On the negative side, agricultural chemicals are perceived by many to present risks to the safety of the food we eat, to the quality of our drinking water, to the wildlife population, to applicators and to people who inadvertently come into point contact with them.

Subsidized Credit and Investment in Agriculture: The Special Case of Farm Real Estate

The purpose of this paper is to provide initial estimates of the impact that government farm credit policies have on the market for farm land. Three specific questions are addressed. How have government farm credit programs influenced (1) farm land prices, (2) farm indebtedness and the (3) the fraction of farm land owned by farmers? The paper is divided into three major sections. First, a theoretical model of the farm land market capable of capturing the effects of interest rate subsidies is developed. The second section presents the results of estimating the model and simulating it under different subsidy regimes.1 The final section summarizes the findings of this paper and raises some questions for further research.

Toward an Aggregative Measure of Saving and Capital Finance for U.S. Farm Operator Families

The present economic accounting system for the farm production sector fails to measure the personal saving of sector participants and its allocation between financing farm and nonfarm investments. This paper discusses the conceptualization, estimation, and usefulness of two economic accounts covering 1970–75 that provide this information for farm operator families, the largest group of sector participants. These accounts also identify the portion of annual farm capital accumulation financed by internal versus external funds. Analytical ratios illustrating the substantial amounts of equity capital withdrawn to finance nonfarm investments in recent years are presented.

Incorporation of General Economic Outcomes in Econometric Projections Models for Agriculture

The AAEA has devoted two invited paper sessions in recent years to the econometric modeling of the farm business sector. A 1974 session dealt with the evaluation of econometric models for the farm business sector as well as for the total economy. Of particular note was the paper presented by Popkin, who cited several approaches to improving price forecasts in macroeconomic models. The attention given to price forecasting in this session was understandable in light of the inordinately high degree of price variability experienced during the 1973-74 period and the inability of existing models to forecast these fluctuations accurately. A 1976 session dealt with the interface in aggregate econometric models between the farm business sector and the general economy. Papers presented by Chen and by Roop and Zeitner emphasized the interaction between farm business sector models and a larger macroeconomic model for the U.S. economy, the Wharton econometric model. One general conclusion stemming from this session was that greater endogenization of nonfarm business outcomes would reduce the error associated with projecting farm business outcomes, and vice versa. In discussing the papers presented in the 1976 session, Johnson alluded to the need to use functional relationships instead of identities when accounting for linkages between the economic sectors of an economy. Just further argued that sector econometric models must reflect the major interfaces with the general economy. The output, input, and international trade linkages he cites, however, represent only -part of the interface between the farm business sector and the general economy. Conspicuous by its absence is the linkage between the bond and equity capital markets, financial intermediaries, and the cost and availability of loan funds to finance farm business operating expenses and capital accumulation. Also missing are most of the channels through which changes in national economic policy stimulate and direct the growth of the total economy.

United States agriculture and the general economy: Modeling their interface

Abstract Models of the US farm business sector typically assume specific trends in the macroeconomy when projecting economic impacts. Implicit in the use of exogenized macroeconomic variables is the assumption that events taking place in agriculture do not affect the macroeconomy. This assumption may not be valid for major shocks to the farm business sector or to the general economy. This article presents an overview of the linkages between the US farm sector and the general economy that underlie AG + GEM, which is a large-scale econometric-simulation model. Estimates of the aggregate economic impacts of banning most agricultural pesticides are presented to illustrate macroeconomic linkages.

Risk and spectral instability in portfolio analysis

Abstract This study extends the traditional E-V portfolio selection model pioneered by Markowitz and extended by others to accommodate the investors attitude towards predicted instability. It is argued that investors—given the choice between the two equal amplitude net earnings series—may either prefer, or be averse to, investing in that stock with the highest frequency, all other things constant. An instability aversion (preference) function was developed in this study that could accomodate alternative attitudes toward instability. Finally, a situation where an investor (who is assumed to be averse to predicted instability) was given the choice of selecting among alternative combinations of six stocks, was analyzed under alternative weights assigned to the importance of instability relative to risk. The results showed that the optimal portfolio combination may begin to differ sharply from the traditional E-V solution as the investors aversion toward instability becomes more important relative to his aversion to risk.

Discussion: Revisiting Macroeconomic Linkages to Agriculture: The Impact of Macroeconomic Variables and the Oil Sector on Farm Prices and Income

Periodically, events occur in the domestic and global economies that remind agricultural economists that macroeconomics matter. This was evident in the early 1980s when the Federal Reserve responded to double-digit inflation by driving interest rates to post–World War II period highs. The Asian financial crisis in the late 1990s, rising oil prices this past decade, and current stress in domestic and overseas financial markets serve to remind us again that externalities can have an effect on the economic performance and financial strength of U.S. agriculture. These effects are transmitted through interest rates, inflation, unemployment, real gross domestic product, and exchange rates.

Impact of Dryeration on Grain Elevator Performance in a Fluctuating Energy Situation

The dryeration process was originally advanced by agricultural engineers to improve grain quality by reducing stress cracks to the kernel normally incurred in the conventional drying process. This study demonstrates that the country grain elevator with dryeration facilities also uses substantially less energy to dry the same amount of grain and achieves higher profits above variable costs associated with drying operations than the elevator with conventional drying facilities, regardless of grain moisture conditions. These advantages are shown to be further magnified if energy prices continue to rise or if potential energy shortfalls are realized.