A note on the role of price risk in soya bean supply functions

Abstract

This article examines whether the inclusion of the price risk variable as an explanatory variable in a Gardner-type acreage response model is statistically significant. By estimating six separate soya bean acreage response equations, including two linear equations with and without risk, two double logarithmic equations with and without risk and two semi-logarithmic equations with and without risk, we find that adding a risk variable to the futures price model yields a better statistical result in every case. Furthermore, the models that have incorporated the risk variable have higher own and cross-price elasticities. This is a desirable result, since in the literature, many previous estimated supply elasticities were considered lower than plausible.

Keywords:

• price risk
• soya bean supply
• futures price
• Gardner model

JEL Classification:

• Q11
• Q13
• Q12