Eggerman, Christopher Ryan (2006-08). Projecting net incomes for Texas crop producers: an application of probabilistic forecasting. Master's Thesis. Thesis uri icon


  • Agricultural policy changes directly affect the economic viability of Texas crop
    producers because government payments make up a significant portion of their net farm
    income (NFI). NFI projections benefit producers, agribusinesses and policy makers, but
    an economic model making these projections for Texas did not previously exist.
    The objective of this study was to develop a model to project annual NFI for
    producers of major crops in Texas. The Texas crop model was developed to achieve this
    objective, estimating state prices, yields and production costs as a function of their
    national counterparts. Five hundred iterations of national price and yield projections
    from the Food and Agricultural Policy Research Institute (FAPRI), along with FAPRI??????s
    average production cost projections, were used as input to the Texas crop model. The
    stochastic FAPRI Baseline and residuals for Ordinary Least Squares (OLS) equations
    relating Texas variables to national variables were used to incorporate the risk left
    unexplained by OLS equations between Texas and U.S. variables.
    Deterministic and probabilistic NFI projections for Texas crops were compared
    under the January 2005 and January 2006 FAPRI Baseline projections. With production
    costs increasing considerably and prices rising moderately in the January 2006 Baseline, deterministic projections of 2006-2014 Texas NFI decreased by an average of 26 percent
    for corn, 3 percent for cotton, 15 percent for peanuts, and 12 percent for rice, and were
    negative for sorghum and wheat. Probability distributions of projected NFI fell for all
    program crops, especially sorghum and wheat. Higher hay price projections caused
    deterministic projections of NFI for hay to rise roughly 13 percent, and increased the
    probability distributions of projected hay NFI. Deterministic and probabilistic
    projections of total NFI decreased for each year, especially for 2006-2008 when fuel
    price projections were the highest.
    The Texas crop model can be used to simulate NFI for Texas crop producers
    under alternative FAPRI baselines. The model shows the impact of baseline changes on
    probability distributions of NFI for each crop and for Texas as a whole. It can also be
    useful as a policy analysis tool to compare impacts of alternative farm and
    macroeconomic policies on NFI.

publication date

  • August 2006