Abstract
This study examines the supply response and the effect of price predictability of corn in the province of Quebec. A generalized autoregressive conditional heteroskedasticity (GARCH) process is used to model output price expectations and its volatility. The empirical results show that price predictability has a positive effect on producers’ decisions. Estimation of supply elasticity illustrates that expected output price is the most important risk factor for corn producers in Quebec.As expected, we found that the Farm Income Stabilization Insurance (ASRA) in Quebec leads producers to be more sensitive to effective prices than to market prices. Our results also show that application of this program causes less sensitivity to input prices than to output prices. Reducing producers’ risk aversion is another implication of this program.
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