Short-term acreage forecasting, and global
supply response to prices and price variability
Mekbib Haile, Matthias Kalkuhl, Jan Brockhaus,
and Joachim von Braun
The Center for Development Research (ZEF), Bonn University
ZEF-IFPRI Meeting on Food Price Volatility and Food Security
Bonn, July 7-9, 2014
I. Acreage forecasting
• Objective
– Construction and empirical testing of acreage forecasting
models that aim to explain the links between output and input
prices and land in a short-run context
• The short-term area forecasting model:
– allows a quantitative forecast of area planted in major producer
regions 3 months before planting with publicly available
information
– provides indications on future cropland in order to adapt input
supply
• The country and crop selection were mainly based on global
relevance in terms of their production share
2
Country-specific price dynamics
– Significant rise in prices of many staple food commodities since 2005
(strong transmission for many producer countries)
– Heterogeneity of prices due to seasonality, transaction costs and policies
375
Wheat prices
Australia
325
Canada-Futures
Prices in USD/mt
China
275
225
India_ws
India_msp
Kazakhstan
175
Russia
Ukraine
125
75
USA-Futures
Argentina
3
Acreage response model
4
Modeling approach & crop calendar:
Example for USA
Maturity
of wheat
futures
Esti
mati
on
Winter
wheat
planting
Winter
wheat
harvesting
Maturity
of soy
and Corn
futures
Esti
mati
on
Esti
mati
on
Jan
Soybean
planting
Soybean
harvesting
Maturity Maturity
of soy of Corn
futures futures
Corn
planting
Feb Mar Apr May Jun
Corn harvesting
Jul
Aug Sep Oct Nov Dec
Jan
Feb Mar Apr May Jun
Jul
5
Selected results
The econometric results are mostly
theoretically consistent and a priori expected
6
USA-corn
Variable
Corn Dec Futures price (Jan)
Effect
size
0.34***
Soy Nov Futures price (Jan)
-0.16*
Last year Oil price
0.03
Last year fertilizer (DAP) price -0.03
Crop/Month
J
F
M
A
M
J
J
A
S
O
N
Time trend
0.003
Adjusted R-square
0.86
D
Corn
Planting
Harvesting
7
Our forecast vs USDA - corn
30
Our forecast in
Jan 2014 = 36.56
Mil. ha
25
Area [million ha]
Corn in USA:
Forecast for
planting in April May 2014
35
40
Corn Area in the USA
USDA projection
in Feb 2014 =
37.11 Mil. ha
2000
2002
2004
2006
2008
Planting Year
+90% CI/-90% CI
Observed data
USDA corn projection in Feb
Source: USDA Economic Research Service
2010
2012
2014
+50% CI/-50% CI
Estimation
8
USA-soy
Variable
Effect size
Last year Soy area planted
0.44**
Soy Sept futures price (Jan)
0.12
Corn Sept futures price (Jan)
-0.17*
Last year Oil price
-0.07**
Last year fertilizer (DAP) price 0.05
Crop/Month
J
F
M
A
M
J
J
A
S
O
N
D
Time trend
0.01***
Adjusted R-square
0.86
Soybeans
Planting
Harvesting
9
Our forecast vs USDA - soy
25
Our forecast in Jan
2014 = 32.42Mil.
ha
20
Area [million ha]
Soybeans in USA:
Forecast for
planting in May June 2014
30
35
Soy Area in the US
USDA projection
in Feb 2014 =
32.98 Mil. ha
2000
2002
2004
2006
2008
Planting Year
+90% CI/-90% CI
Observed data
USDA Soy projection in Feb
Source: USDA Economic Research Service
2010
2012
2014
+50% CI/-50% CI
Estimation
10
India - soybeans
Variable
Effect size
Last year area
0.72***
Soy real price (Mar)
0.21**
Corn real price (Mar) -0.06
Crop\Month
Rice - Kharif
Rice - Rabi
Maize - Kharif
Maize - Rabi
Wheat
Crop\Month
Soy
Rice - Kharif
Rice - Rabi
Maize - Kharif
Maize - Rabi
Wheat
J
J
F
F
M A M J
M A M J
Planting
J
J
A
A
S
S
O N D
Time trend
0.01
Adjusted R-squared
0.97
O N D
Harvesting
11
Brazil-Maize
Variable
Maize Mar futures price (May)
Soy Mar futures price (May)
Last year fertilizer (UREA) price
Time trend
Adjusted R-square
Effect size
0.21*
-0.52**
0.24***
-0.04***
Crop/Month
0.89
Maize
Variable
Maize Sept futures price (Oct)
Last year fertilizer price index
Time trend
Adjusted R-square
J
F
M
A
M
J
J
A
S
O
N
Effect size
0.57***
-0.28***
0.06***
0.98
D
1st
2nd
Soybeans
Planting
Harvesting
12
Excel tool application-USA
INPUT
Current year
2013
Soy
Corn
Estimation to be conducted in January 13
Planting: May 13 - Jun 13
Harvesting: Sep 13 - Oct 13
Marketing year: 2013/2014
Future Soy Sep 2013
489.7
(USD/mt)
Future Corn Sep 2013
239.8
(USD/mt)
DAP Fertilizer Average Price 2012
539.8
(USD/mt)
Oil Average Price 2012
105.0
(USD/bbl)
Soy Area planted 2012/2013
31.24
(million ha)
Estimation to be conducted in January 13
Planting: Apr 13 - May 13
Harvesting: Sep 13 - Nov 13
Marketing year: 2013/2014
Future Soy Nov 2013
476.3
(USD/mt)
Future Corn Dec 2013
230.6
(USD/mt)
DAP Fertilizer Price Average 2012
539.8
(USD/mt)
Oil Price Average 2012
105.0
(USD/bbl)
Corn Area planted 2012/2013
39.34
(million ha)
OUTPUT
90% CI 29.03
36.16
Soy
Corn
Estimated area of plantation (million ha) in 2013/2014
50% CI Base case
50% CI +
30.38
31.38
32.36
37.59
38.63
39.67
Corn
35.0
34.0
33.0
90% CI +
32.0
31.0
50% CI +
30.0
Base case
29.0
50% CI -
28.0
90% CI -
27.0
26.0
2012/2013
2013/2014
Year
Acreage Planted (million Ha)
Acreage Planted (million Ha)
0.05
Soy
0.03
90% CI +
33.87
41.23
42.0
41.0
40.0
90% CI +
39.0
38.0
50% CI +
37.0
Base case
36.0
50% CI -
35.0
90% CI -
34.0
33.0
2012/2013
2013/2014
Year
13
II. Global supply response
• How do porduction, area and yield respond to
price and price risk?
– System GMM estimation technique
• To what extent does price volatility weaken the
positive supply response that the recent increase
in price levels (2006-2010) would have brought?
– Simulation analysis to examine the net impact
14
Challenges of global supply models
• Planting and growing calendars are different from
country to country
– Seasonality matters
• Annual prices too general; monthly
appropriate – but which prices to choose?
more
– Annual panel over countries where expected prices at
planting time are assigned to each country according to
crop calender information
15
Dynamic panel model
16
Results and discussion
Three separate models for each of the four
crops
– Production, Acreage, Yield response
17
Selected results
Wheat
Own price
Own price vol.
Own price
Own price vol.
Own price
Own price vol.
0.09**
(0.04)
-0.69***
(0.29)
0.08***
(0.03)
-0.37**
(0.14)
0.17***
(0.05)
-0.34**
(0.16)
Corn
Soybeans
Production response
0.24**
0.36**
(0.11)
(0.16)
0.30
-0.66
(0.23)
(0.57)
Acreage response
0.07***
0.15**
(0.01)
(0.07)
0.14
0.22
(0.09)
(0.09)
Yield response
0.09**
0.15***
(0.04)
(0.04)
-0.37**
-0.47**
(0.17)
(0.23)
Rice
0.05***
(0.01)
-0.25**
(0.11)
0.03**
(0.01)
-0.11**
(0.05)
0.06**
(0.01)
-0.17**
(0.06)
Note: All regressions are two-step system GMM. Two-step standard errors clustered by country, incorporating the
Windmeijer (2005) correction, are in parentheses. *, **, and *** represent the 10%, 5%, and 1% levels of significance .
18
Net-impact: Simulation analysis
12%
Impact of
volatility increase
8%
Impact of
fertilizer increase
4%
0%
-4%
Impact of price
increase
-8%
Net effect
-12%
Wheat
Soybeans
Maize
Rice
Fig. Impacts of the 2006–2010 price dynamics on
production
19
Conclusion
USA
Ukraine
Russia
Mexico
Kazakhstan
India
China
Canada
Brazil
Australia
Argentina
• A simple tool in order to forecast acreage of major staple
crops for selected countries
Soybeans
Total maize
*
*
Total wheat
**
Total Rice
**
**
Estimation conducted and Excel tool developed
No significantly large share of the worldwide area, no estimation has been conducted.
Estimation conducted but no good results; therefore, no Excel tool has been developed.
* The estimation was conducted for each season and an Excel tool for each season has been developed.
** Estimations for the different seasons have been conducted but the input data which is needed is not
available three month before planting; therefore, no Excel tool has been developed.
20
Conclusion
• Production response to world prices and
volatility occurs via both yield and acreage
response
• Supply elasticities are generally small
– Incomplete price transmission from international to
domestic prices
• Global supply of this commodities responds
negatively to price volatility
– The price volatility in the 2006-2010 period significantly
weakened the positive supply response towards higher
price levels
21
Thank you!
Comments and Suggestions!
mekhaile@uni-bonn.de
Data and sources
Variable
Source
Resolution
Remark
Spot prices (crop,
fertlizer, and oil)
World Bank price
database, National
statistics
Monthly
Futures prices
Bloomberg, TDX
Monthly
Area planted
National agricultural
statistical offices
Annual (Seasonal) Seasonal data in
some cases
Area harvested
USDA, FAO, AMIS
National Sources
Annual (Seasonal) Seasonal data in
some cases
Crop calendar
AMIS, FAO GIEWS,
various sources
NA
Average from daily
prices
Expert knowledge
from Bayer CS
India - Rice
Crop\Month
Rice - Kharif
Rice - Rabi
Maize - Kharif
Maize
- Rabi
Crop\Month
Wheat
Rice - Kharif
Soy
Rice - Rabi
Maize - Kharif
Maize
- Rabi
23/04/2014
Wheat
J
J
F
F
M A M J
M A M J
Planting
J
J
A
A
S
S
O N D
O N D
Harvesting
Variable
Last year total rice area
harvested
Rice minimum support price
in March (CPI deflated)
Rice price difference
between wholesale price
and MSP in March (CPI
deflated)
Maize wholesale price in
March (CPI deflated)
Rainfall in % of normal
rainfall
Constant
Adjusted R-squared
Effect size
0.680**
0.053
0.009
-0.064
0.334***
-0.17
0.479
Many government interventions into
the rice markets
 Markets hardly respond to prices
Final Report | Bayer-ZEF Cooperation |
Acreage Forecasting Tool
24
India – Rice per Season
Many government interventions into the rice markets
 Markets hardly respond to prices
23/04/2014
Final Report | Bayer-ZEF Cooperation |
Acreage Forecasting Tool
25
India-Maize
26
China - rice
Variable
Effect size
Japonica rice real
0.21***
price in (Nov)
International real rice 0.08**
price (Dec)
Crop/Month
Maize
North
South
Crop/Month
Rice
Early crop
Mid
& late
Maize
North
Double
South late
Crop/Month
Soybeans
Rice
Early
Maize
Northcrop
Wheat
Spring
Mid
& late
South
Winter
Double
late
Rice
Early crop
Soybeans Mid & late
Wheat
Spring
Double late
Time trend
J F M A M J J A S O Dummy
N D from year
2008 (lagged)
Constant
J F
M
A
M
J
J
A
S
O
J F
M
A
M
J
J
A
S
O
Planting
N D
Adjusted R-square
N D
Harvesting
-0.01***
-0.09***
30.5***
0.9
Crop calendar for corn
Planting
Country/Month
Argentina
Australia
Bangladesh
Brazil
Cambodia
Canada
China
Egypt
Ethiopia
EU27
India
Indonesia
Iran
Japan
Kazakhstan
Mexico
Myanmar
Nigeria
Pakistan
Paraguay
Philippines
Russia
South Africa
Sri Lanka
Thailand
Turkey
Uruguay
Ukraine
United States
Uzbekistan
Viet Nam
Others
Jan
Feb
Harvesting
Mar
Apr
May
Jun
Planting and Harvesting
Jul
Aug
Sep
Oct
Nov
Dec
Global shares for 2008 calendar year (%)
Acreage
Production
2.11
2.66
0.04
0.05
0.14
0.16
8.90
7.14
0.10
0.07
0.73
1.33
18.02
20.56
0.56
0.90
1.07
0.46
5.34
7.62
4.93
2.42
2.42
1.94
0.15
0.22
0.05
0.00
0.06
0.05
4.79
2.90
0.21
0.15
2.29
0.91
0.63
0.44
0.52
0.30
1.61
0.83
1.03
0.81
1.99
1.57
0.02
0.01
0.60
0.51
0.36
0.52
0.05
0.04
1.52
1.33
20.99
37.49
0.02
0.03
0.87
0.56
17.90
6.04
Table 1. Estimates of Production and Acreage Response
Variable
Lagged dependent
variable
Wheat price
Corn price
Soybean price
Rice price
Wheat price volatility
Corn price volatility
Soy price volatility
Rice price volatility
Fertilizer price
Time dummies
N
F-test of joint
significance: p-value
Test for AR(2): p-value
Diff-Sargan test: pvalue
Wheat
0.96***
(0.01)
0.09**
(0.04)
0.08
(0.06)
-0.02
(0.05)
-0.01
(0.03)
-0.69**
(0.29)
0.49
(0.45)
0.36
(0.24)
Production
Corn
Soybeans
0..96***
(0.04)
-0.03
(0.06)
0.24**
(0.11)
0.06
(0.06)
-0.14**
(0.07)
0.16
(0.28)
0.30
(0.23)
-0.66
(0.57)
0.93***
(0.04)
-0.21***
(0.06)
-0.04
(0.06)
0.36**
(0.16)
-0.07
(0.06)
0.44**
(0.17)
-0.44**
(0.17)
0.18
(0.41)
Acreage
Corn
Soybeans
Rice
Wheat
0.99***
(0.02)
0.99***
(0.01)
0.08***
(0.03)
-0.002
(0.03)
-0.05
(0.03)
0.97***
(0.03)
0.01
(0.01)
0.07***
(0.02)
-0.04*
(0.02)
0.93***
(0.03)
-0.03***
(0.01)
-0.12***
(0.02)
0.15**
(0.07)
-0.37**
(0.14)
0.25*
(0.13)
0.28**
(0.11)
0.12
(0.15)
0.14
(0.09)
-0.11
(0.13)
-0.07
(0.16)
0.11
(0.15)
0.22**
(0.09)
0.05***
(0.01)
Rice
0.99***
(0.00)
0.03**
(0.01)
-0.08**
(0.03)
Yes
1 ,174
-0.01
(0.02)
Yes
1,444
0.05**
(0.02)
Yes
1,371
-0.25**
(0.11)
-0.01
(0.01)
Yes
1,342
-0.01
(0.01)
Yes
1,162
-0.02
(0.01)
Yes
1,418
0.02
(0.03)
Yes
1,350
-0.11**
(0.05)
-0.01*
(0.01)
Yes
1,342
0.00
0.15
0.00
0.15
0.00
0.07
0.00
0.09
0.00
0.89
0.00
0.29
0.00
0.98
0.00
0.14
0.99
0.99
0.98
0.99
1.00
0.99
0.99
0.98
Notes: All regressions are two-step system GMM. Two-step standard errors clustered by country, incorporating the
Windmeijer (2005) correction, are in parentheses. Yield deviations are included in the acreage response models as additional
control variables. *, **, and *** represent the 10%, 5%, and 1% levels of significance. All the production and area response
models are weighted by the global crop acreage share of the respective country. Sensitivity analyses where we estimated
elasticities using panels excluding countries in the rest of the world (ROW) group provide consistent results. Rice price and
volatility are excluded in the non-rice acreage response models since land for rice cultivation is not usually suitable for these
crops; however, competition in production is possible through input substitution.
Table 1. Estimates of Yield Response
Variable
Lagged dependent variable
Own-crop price
Own-price volatility
Fertilizer price
Time dummies
N
F-test of joint significance:
p-value
Test for AR(2): p-value
Diff-Sargan test: p-value
Wheat
0.92***
(0.03)
0.17***
(0.05)
-0.34**
(0.16)
-0.07**
(0.03)
Yes
1,174
Corn
0.96***
(0.02)
0.09**
(0.04)
-0.37**
(0.17)
-0.01
(0.02)
Yes
1,444
Soybeans
0.93***
(0.04)
0.15***
(0.04)
-0.47**
(0.23)
-0.05**
(0.02)
Yes
1,371
Rice
0.98***
(0.01)
0.06***
(0.01)
-0.17**
(-0.06)
-0.03*
(0.01)
Yes
1,363
0.00
0.05
0.96
0.00
0.43
0.74
0.00
0.08
0.93
0.00
0.13
0.84
Notes: All regressions are two-step system GMM. Two-step standard errors clustered by country, incorporating the
Windmeijer (2005) correction, are in parentheses. *, **, and *** represent the 10%, 5%, and 1% levels of significance.
10%
8%
Impact of volatility increase
Impact of fertilizer increase
Impact of price increase
Net effect
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Wheat
Corn Soybeans Rice
Acreage
Wheat
Corn Soybeans Rice
Yield
Note: The figure shows the impact of output and fertilizer prices, and output price volatility on acreage and yield
compared with a counterfactual where these values were set to their long-term average. The net effect is calculated as the
sum of the three components. The depicted rates refer to the net impacts during the five-year period 2006–2010. These
changes are the direct short-term response, and they are the lower bounds for the longer-term effects as the coefficients
of the autoregressive term are positive and closer to unity.
Overview of Timing in India
Esti
mati
on
Kharif
maize
planting
Esti
mati
on
Esti
mati
on
Esti
mati
on
Jan
Soy
planting
Feb Mar Apr May Jun
23/04/2014
Jul
Kharif
maize
harvesting
Rabi maize
harvesting
Rabi maize
planting
Wheat planting
Wheat
harvesting
Soy
harvesting
Aug Sep Oct Nov Dec
Jan
Final Report | Bayer-ZEF Cooperation |
Acreage Forecasting Tool
Feb Mar Apr May Jun
Jul
32
Table 1. Overview of the results of the regression models.
Cana
da
Brazil
Aus
trali
a
Argen
tina
Crop
Maize
price
Maize 0.41*
Soybeans -0.04
Wheat
Rice price
Last year
area
0.76***
0.76***
-0.09
Time
trend
0.02*
-0.01**
2.06**
0.27
41.92**
Adjusted
R²
0.80
0.99
0.73
0.31
0.03***
-51.94*
0.85
-0.14
0.20
0.62***
-0.04***
0.06***
0.03**
81.79***
0.87
-119.36*** 0.98
-48.12**
0.97
0.12**
0.38*
-0.01**
33.92**
0.79
Total Wheat
0.06***
0.55***
0.003**
-0.38*** (2000)
-5.27**
0.95
Spring Wheat
Winter Wheat
0.30***
0.02
0.02
0.78***
-2.07*** (2000)
0.004 (2000)
-1.76*** (1995)
2.96*** (2006)
0.55
-7.05
0.97
0.89
2.96***
0.71
Wheat
1st Maize 0.21
2nd Maize 0.57***
Soybeans -0.02
Early Rice
Mid Rice
Double-crop
late rice
0.21*** (WS)
0.08** (Int.)
0.35***
0.14***
0.27***
Previous
oil price
0.06
-0.32
0.08
0.24***
-0.28***
-0.17**
0.14
Total Maize 0.16*
Fertilizer
price
-0.08*
-0.52**
Wheat
Total Rice
Wheat
price
0.11*
Soybeans -0.65***
China
Soybean
price
-0.41*
0.03
-0.24
-0.23***
0.35***
0.29
-0.06
0.44**
0.004
Dummy (year) /
Other
Constant
0.01*
0.39 (1995)
-0.70* (2006)
-16.58
0.95
-0.01***
-0.10*** (2008)
-0.10***
0.90
0.41**
-0.02***
0.01***
44.85***
-17.44***
0.95
0.94
0.70***
-0.01***
26.06***
0.98
Kharif Maize
Rabi Maize
India
Total Rice
0.20*
0.53**
-0.06
Kharif Rice
Rabi Rice
-0.05
0.05 (MSP)
0.01 (WS-MSP)
0.02
0.84 (MSP)
0.08*(WS-MSP)
Soybeans -0.06
0.517
-0.30
Kazakh
stan
Mexi
co
Maize
0.10*
Russ
ia
Wheat
Ukrai
ne
-0.06
USA
0.72***
0.14 (WS)
0.08
(WS/MSP)
Wheat
0.02
-0.29**
Maize
price
0.98**
-0.31
-0.163*
0.118
Rice price
Soybean
price
-0.95**
0.35
0.133***
Wheat
price
0.87
0.95
0.33*** (Rain)
-0.17
0.48
0.24** (Rain)
3.89
0.43
0.75** (Rain)
-2.66
0.53
-20.16
0.97
0.49
0.74
0.01
0.71***
-0.05
0.22**
0.41***
-0.01
24.94***
0.70
-0.12**
0.11**
-0.47**
-0.02
59.33
0.71
0.24***
-0.35*
0.02**
49.15***
0.71
0.50
0.81***
-0.24
-0.20
0.10***
0.05
-0.01
0.003
0.011***
-0.005
Time
trend
-191.82***
-92.16
24.42
4.089
-16.766
15.486
Constant
0.98
0.74
0.20
0.86
0.86
0.84
Adjusted
R²
0.26**
-0.67**
0.34
-0.19
0.338***
-0.166*
-0.002
0.35
0.21**
-0.24
-117.9**
0.06**
0.68**
Wheat
Soybeans
Maize
Wheat
Maize
Soybeans
Wheat
Crop
0.85***
0.03
-0.12
-0.24
0.31
-0.031
0.046
-0.085**
Fertilizer
price
0.029
-0.067**
-0.013
Previous
oil price
0.437**
0.486**
Last year
area
Dummy (year) /
Other