Essays on precautionary seed demand, agricultural commodity price volatility, and the adoption and diffusion of genetically modified crops

Yue Zhao

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

Abstract: This dissertation explores three dimensions of U.S. agricultural production: farmers' decision-making under risk, market volatility, and the diffusion of genetically modified (GM) crops. The first paper investigates the impact of precautionary motives on optimal corn seeding rates, demonstrating their limited influence compared to savings and asset decisions. The conceptual model shows that precautionary motives increase seeding rates when seeds reduce yield risk and decrease them when seeds increase yield risk. Analysis of Ohio and Illinois field data reveals a U-shaped yield risk response to seeding rates. Simulations indicate a 0.2% seeding rate increase in Ohio and a 0.19% decrease in Illinois due to precautionary motives, while yield insurance reduces optimal seeding rates in both states by up to 2%. The second paper examines the impacts of biofuel policies, globalization in crop production, and agricultural technology adoption on the option-implied volatility (IV) of harvest-season corn and soybean futures contracts. We find that corn IV has consistently been higher than soybean IV, especially after 2005. This difference is driven by three main factors: crop riskiness, production globalization, and biofuel policies. First, corn is more sensitive to heat shocks than soybean, indicating it is a riskier crop. Second, U.S. biofuel policies have raised corn IV, while globalization has largely offset this effect. In contrast, greater globalization in soybean production has helped significantly reduce soybean IV. Consequently, we find that soybean’s price elasticity of demand increased significantly after 2005, while corn’s elasticity remained stable, contributing to lower soybean IV. The adoption of genetically modified (GM) corn and soybean varieties has increased yields and reduced yield variability, though we find mixed evidence regarding GM crops’ impact on IV. Finally, higher storage levels and a stronger U.S. dollar correlate with reduced IV, while a higher VIX index and interest rates correlate with increased IV. These findings underscore the complex role of policy, global markets, and crop characteristics in shaping agricultural volatility. The third paper analyzes the diffusion and adoption patterns of GM corn and soybean across time, regions, and farm categories, exploring factors that influence these processes. Results show a steady increase in the adoption rates of herbicide-tolerant (HT) soybean, HT corn, and corn borer-resistant (CB) corn. Notably, there has been a significant dis-adoption of rootworm-resistant (RW) corn since the 2010s, likely due to insects’ resistance development. This dis-adoption trend also correlates with increased insecticide use for corn rootworm control. Significant spatial differences are observed in the adoption of GM corn, while HT soybean shows small regional variation. HT soybean was adopted faster in southern states, and HT and CB corn were initially adopted in western Corn Belt states before spreading eastward, whereas RW corn adoption began in regions with high continuous corn intensity. Additionally, larger farms adopted GM traits earlier than smaller farms, generating spillover effects that promoted the adoption of smaller farms. Higher crop prices significantly accelerated adoption, as they enhanced profitability, with smaller farms exhibiting greater sensitivity and responsiveness to price changes. These findings underscore the complex interactions between economic incentives, regional characteristics, and farm sizes in shaping GM crop adoption patterns.

Date: 2025-02-11
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