Estimating Price Variability in Agriculture: Implications for Decision-Makers

Using a stochastic version of the POLYSYS modeling framework, an examination of projected variability in agricultural prices, supply, demand, stocks, and incomes is conducted. Random yield and export shocks are introduced in each of 100 iterations of a ten-year simulation and planted acreage, production, total use, ending stock, stock-to-use, season average price, and net return results are presented for corn, wheat, soybeans, and cotton during the 1998-2006 period. Increased planting flexibility introduced in the 1996 farm bill results in projections of significantly higher planted acreage variability compared to recent historical levels. Ending stocks and stock-to-use ratios are projected to be higher for corn and soybeans and lower for wheat and cotton compared to the 1986-96 period. Significantly higher variability is projected for corn prices, with wheat and soybeans prices also more variable. No significant change in cotton price variability is projected. Compared to the 1986-96 period, net returns are projected to be more variable for corn, wheat, and soybeans, but less variable for cotton.