Producer Supply Response for Area Planted of Seven Major U.S. Crops

The U.S. Department of Agriculture’s (USDA) Agricultural Baseline provides a 10-year outlook for seven major U.S. crops (corn, soybeans, wheat, sorghum, barley, oats, and cotton). The baseline plays an important role in predicting farm program expenditures in the President’s annual budget proposal. To provide the best possible projections, it is necessary to frequently revisit the underlying models behind the baseline to ensure that they are theoretically consistent and produce realistic projections. This study examined the performance of the existing area planted equations for seven major U.S. crops in the baseline model relative to observed historical area planted values. It subsequently estimates a system of equations for the crops to produce price consistent supply (i.e., higher price increases the supply of the crop associated with higher prices but decreases other crop supplies). Projections created from the resulting price and net return elasticities are shown to be an improvement over the existing U.S. base line equations.