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Assessing the Effects of Climate Change on Farm Production and Profitability: Dynamic Simulation Approach

Author

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  • Cai, Ruohong
  • Bergstrom, John C.
  • Mullen, Jeffrey D.
  • Wetzstein, Michael E.

Abstract

In this paper, a dynamic optimization model was developed to simulate how farm-level realized price and profitability respond to yield change which was induced by climate change. Producers' acreage response was included in the dynamic model considering crop rotation effect. In the crop rotation model, a modified Bellman equation was used to dynamically optimize the net present value of farm profit for a five-year interval. This simulation process was repeated through the year 2050. Then yield, price, and acreage response were compiled to generate realized profit. Results generally indicated that reduction in crop yields due to climate change results in reduced farm profitability for most of the states studied. Predicted climate change is more likely to pose a problem for agricultural production and profitability in the southern U.S. states as compared to the northern U.S. states. Our results also suggest that acreage response alone is not sufficient to ameliorate the potential negative effects of global climate change on agricultural production and profitability. The results of this research are expected to provide a foundation for future related research to aid producers' crop rotation decisions in an unstable price environment.

Suggested Citation

  • Cai, Ruohong & Bergstrom, John C. & Mullen, Jeffrey D. & Wetzstein, Michael E., 2011. "Assessing the Effects of Climate Change on Farm Production and Profitability: Dynamic Simulation Approach," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103420, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103420
    DOI: 10.22004/ag.econ.103420
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    References listed on IDEAS

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    1. Anne E. Peck, 1976. "Futures Markets, Supply Response, and Price Stability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 407-423.
    2. Westcott, Paul C. & Price, J. Michael, 2001. "Analysis Of The U.S. Commodity Loan Program With Marketing Loan Provisions," Agricultural Economic Reports 34035, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Frederick Murdoch Quaye & Denis Nadolnyak & Valentina Hartarska, 2017. "Factors Affecting Farm Loan Delinquency in the Southeast," Research in Applied Economics, Macrothink Institute, vol. 9(4), pages 75-92, December.
    2. Quaye, Frederick & Hartarska, Valentina & Nadolnyak, Denis, 2015. "Farmer Credit Delinquency in Southeastern US: Factors and Behavior Prediction," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196914, Southern Agricultural Economics Association.

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    Keywords

    Agricultural Finance; Crop Production/Industries; Environmental Economics and Policy; Farm Management; Land Economics/Use; Production Economics; Productivity Analysis; Risk and Uncertainty;
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