Producer Expectations and the Extensive Margin in Grain Supply Response

Grain supply is the joint effect of both area and yield; however, research often targets either one or the other. The research presented here estimates the complete supply elasticity of grains using novel approaches to approximate producers’ price and weather expectations on both yield and acres planted. The results from this approach combining acreage and yield show the negative impact of expanded production on average yields and the supply response. Additionally, the research extends previous methods of approximating producers’ price expectations through the use of historical basis prices.