Masters Theses

Date of Award

8-1979

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

David W. Brown

Committee Members

S. Darrell Mundy, Dan McLemore

Abstract

This study was intended to provide diagnostic insight into some of the political and economic factors affecting crop price fluctuations and their effect on decision-making on West Tennessee farms. The primary focus was on the impact of foreign trade on domestic price stability from the farmer's perspective. The study included an overview of foreign agricultural trade of the United States in recent history, with an emphasis on how the trade and agricultural policies of the U.S. and its major trading partners interact to influence price stability in this country. The four major cash crops in West Tennessee (soybeans, cotton, com, and wheat) were analyzed with respect to the characteristics of importance to decision-makers on both the policy and farm levels. These characteristics included price, production and export trends, the inter-national supply and demand situation, market structure, and other factors affecting the long-term prospects for exports. This information was incorporated into several simulated decision-making situations to illustrate the effect of different degrees of price variability on farm income. Three five-year price scenarios were assumed; one with large price fluctuation, one with low fluctuations, and one with a series of bad (low price) years for soybeans. These scenarios represented domestic farm-level prices for the four major commodities with no interference from the government. These basic prices could then be modified by one of six government programs. Two variations—one with annual cost-of-production adjustments and the other without—of three types of government programs were assumed. The three types of government programs were a market floor support system, an income support system, and a price band system. A total of eighteen different situations were therefore assumed (each of three scenarios subject to six programs). This macro-level view was then balanced with a micro-level view. Two illustrative farms were assumed—a medium-sized full-time farm and a small, limited resource, part-time farm. Each farm used four "naive" strategies to attempt to deal with uncertainty. The illustrative model showed the effects on farm income for each farm under every combination of strategy, government program, and scenario. The income figures were used to assess not only the average income and income variation under each situation but also the effect on the ability of each farm to generate enough income to weather the low income years, survive as a business, and to provide a source of livelihood for the family. The study found that world trade in agricultural commodities will probably continue to increase in the near future. While some international agreements may reduce domestic price variability to some extent, the potential for major price fluctuations still exists due to the basic structure of the international markets and the continuation of policies which distort market signals. Of the four crops with which the study is concerned, the most promising was soybeans. Corn also has some potential while both cotton and wheat are subject to greater uncertainty. While the illustrative model was too general to be used for prescribing certain actions, it did allow for generalizations to be drawn about the interaction of scenarios, programs and farm-level strategies. Implications were also made for directions for future research in this area.

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