The impacts of crop yield and price volatility on producers' cropping patterns: A dynamic optimal crop rotation model

A dynamic optimization model is developed to show how crop yield and price volatility could impact acreage response under crop rotation considerations. By maximizing net present value of expected current and future farm profits, a modified Bellman equation helps optimize planting decisions. Our model is capable of simulating crop rotations with different lengths and structures. The corn-soybean rotation was simulated using the model to determine break-even prices for alternative planting decisions. Furthermore, we assume that the extent to which crop yields are penalized when skipping a rotation scheme is not fixed. Then we investigated the relationship between yield penalty levels and break-even corn price percentage changes. By considering both 1-year and 2-year carry-over effects which represent how previous crops affect current crop yield, our results indicate that producers are more likely to choose a crop rotation scheme when yield penalties are higher. (C) 2012 Elsevier Ltd. All rights reserved.