Tatonnement modeling with linear programming: demand and supply for some United States crops in 2000

Raymond Schatzer ()

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: During the last decade, two concerns have been raised about the future of U.S. crop production. These concerns are: (a) Will the United States have enough land available in the future that is suitable for crop production? and (b) What will future crop yields be? Future U.S. crop production is highly dependent upon both these issues;The real problem may not be the quantity of future crop production, but rather the price of the quantity that is available. The development of a model to answer this question is one of the objectives of this study. The other objective is the projection of prices and quantities for barley, corn, oats, sorghum, soybeans, and wheat for the year 2000 under alternative yield and land availability assumptions;An iterative model based on the theory of tatonnement process of market adjustments is developed using a linear programming model to stimulate the behavior of producers and demand equations estimated econometrically to stimulate the behavior of consumers. The iterative model starts at an arbitrary level of demand for each commodity and solves for approximate equilibrium prices and quantities;The iterative model is used to estimate approximate equilibrium prices and quantities for barley, corn, oats, sorghum, soybeans, and wheat and supply prices for corn silage, sorghum silage, legume hay, other hay, and cotton for the year 2000. Seven scenarios consisting of three alternative yield levels and three alternative levels of land constraints are run and analyzed;The results from the seven scenarios suggest that the future equilibrium prices and quantities are highly dependent upon the assumptions made about future crop yields and future cropland availability. The highest equilibrium price for barley, corn, oats, sorghum, wheat, and soybeans is 182.1, 158.8, 145.3, 165.1, 182.4, and 208.9 percent higher than the lowest equilibrium price, respectively.

Date: 1982-01-01
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