What Do We Know about Agricultural Producers' Behavior under Price and Yield Instability?

Abstract

Unstable prices and yields imply uncertain prices and yields. One could imagine a situation where controlled prices were announced well in advance but fluctuated according to perceived circumstances at the times of the announcements. Some agricultural programs have approximated the latter, but the main interest here is in supply response with price unknown at the time production and tentative marketing decisions are made. In considering producer behavior in the United States, it is worth noting that 70% of cash sales are furnished by the 450,000 farms (16%) having sales of $40,000 or more. On the average, each operator in this group controls nearly a million dollars worth of farm assets. Thus, supply response is principally determined by a group of highly competitive, respectably sized businesses. Direct observation supports the theoretical conjecture that survival or growth in such businesses requires intelligent, industrious, and informed managers. So the mental image I have of the party whose decisions we want to understand is that of an alert, sophisticated person continually mingling physical and supervisory tasks with a wide assortment of calculations and gathering and sifting a variety of relevant information.