U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenues

17 Pages Posted: 1 Apr 2020

See all articles by Sergio H. Lence

Sergio H. Lence

Iowa State University - Department of Economics

Dermot J. Hayes

Iowa State University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

Abstract

A dynamic three‐commodity rational‐expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a free‐market policy, and with pre‐FAIR policies. Results suggest that FAIR did not lead to significant increases in long‐run price volatility or revenue volatility. The main impact of pre‐FAIR, relative to the free‐market regime, was to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes. Results also indicate that U.S. grain market volatility in 1995–2000 was due to fundamental market forces and not to FAIR.

Keywords: commodity markets, FAIR Act, farm policy, price volatility, rational expectations, storage model, welfare analysis, Q110, Q120, Q180

Suggested Citation

Lence, Sergio H. and Hayes, Dermot J., U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenues (May 2002). American Journal of Agricultural Economics, Vol. 84, Issue 2, pp. 335-351, 2002, Available at SSRN: https://ssrn.com/abstract=3565355 or http://dx.doi.org/10.1111/1467-8276.00301

Sergio H. Lence (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Dermot J. Hayes

Iowa State University

613 Wallace Road
Ames, IA 50011-2063
United States

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