The Outlook for Asian Dairy Markets: The Role of Demographics, Income, and Prices, June 2005

The paper first presents a 10-year outlook for major Asian dairy markets (China, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Thailand, and Vietnam) based on a world dairy model. Then, using Heien and Wessells’s technique, dairy product consumption growth is decomposed into contributions generated by income growth, population growth, price change, and urbanization and these contributions are quantified. Using the world dairy model, the paper also analyzes the impacts of alternative assumptions of higher income levels and technology development in Asia on Asian dairy consumptions and world dairy prices. The outlook projects that Asian dairy consumption will continue to grow strongly in the next decade. The consumption decomposition suggests that the growth would be mostly driven by income and population growth and, as a result, would raise world dairy prices. The simulation results show that technology improvement in Asian countries would dampen world dairy prices and meanwhile boost domestic dairy consumption.

U.S. Farm Policy and the Variability of Commodity Prices and Farm Revenues, February 2000

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 freemarket policy and with the agricultural policies that preceded the FAIR Act. Results support the hypothesis that the changes made when FAIR was enacted did not lead to permanent significant increases in the volatility of farm prices or revenues. An important finding is that the main economic impacts of the Pre-FAIR scenario, relative to the free-market regime were to transfer income to farmers and to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes.

The Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, November 2006

The ongoing growth of corn-based ethanol production raises some fundamental questions about what impact continued growth will have on U.S. and world agriculture. Estimates of the long-run potential for ethanol production can be made by calculating the corn price at which the incentive to expand ethanol production disappears. Under current ethanol tax policy, if the prices of crude oil, natural gas, and distillers grains stay at current levels, then the break-even corn price is $4.05 per bushel. A multi-commodity, multi country system of integrated commodity models is used to estimate the impacts if we ever get to $4.05 corn. At this price, corn-based ethanol production would reach 31.5 billion gallons per year, or about 20% of projected U.S. fuel consumption in 2015. Supporting this level of production would require 95.6 million acres of corn to be planted. Total corn production would be approximately 15.6 billion bushels, compared to 11.0 billion bushels today. Most of the additional corn acres come from reduced soybean acreage. Wheat markets would adjust to fulfill increased demand for feed wheat. Corn exports and production of pork and poultry would all be reduced in response to higher corn prices and increased utilization of corn by ethanol plants. These results should not be viewed as a prediction of what will eventually materialize. Rather, they indicate a logical end point to the current incentives to invest in corn-based ethanol plants.

Impact of High Crop Prices on Environmental Quality: A Case of Iowa and the Conservation Reserve Program, 2007

Growing demand for corn due to the expansion of ethanol has increased concerns that environmentally sensitive lands retired from agricultural production into the Conservation Reserve Program (CRP) will be cropped again. Iowa produces more ethanol than any other state in the United States, and it also produces the most corn. Thus, an examination of the impacts of higher crop prices on CRP land in Iowa can give insight into what we might expect nationally in the years ahead if crop prices remain high. We construct CRP land supply curves for various corn prices and then estimate the environmental impacts of cropping CRP land through the Environmental Policy Integrated Climate (EPIC) model. EPIC provides edge-of-field estimates of soil erosion, nutrient loss, and carbon sequestration. We find that incremental impacts increase dramatically as higher corn prices bring into production more and more environmentally fragile land. Maintaining current levels of environmental quality will require substantially higher spending levels. Even allowing for the cost savings that would accrue as CRP land leaves the program, a change in targeting strategies will likely be required to ensure that the most sensitive land does not leave the program.

Indexes of prices received by Iowa farmers for farm commodities.

The Iowa Crop and Livestock Report