Estimation of Regional Corn Supply Functions Incorporating Alternative Forms of Risk and Government Policy Variables

The primary objective of this study is to analyze the effects of price uncertainty, weather risk, and government intervention policies on regional com supply functions. A model of producer behavior under risk and uncertainty is developed for the 10 major com producing states in the United States. The empirical results indicate that these risk variables have supply reducing effects in the production of com for grain. Two government policy variables are included in the supply response model: the effective com price support and the effective com diversion payment. The estimated results imply that these policy variables tend to have supply inducing effects. Estimated short-run supply elasticities, with and without risk variables, are also derived. The results indicate that short-run supply elasticities accounting for price and weather risks are relatively more elastic than the case without risk. Thus, researchers and policy analysts would tend to underestimate supply response by excluding risk.