| Sumario: | A study finds that high levels of a cotton farm's initial base acreage endowment can be worth a substantial premium over low levels. Base acreage is the amount of acreage planted and “considered planted” for agricultural subsidy purposes. A representative commercial-size cotton farm was devised with data from the Northwest Alabama Farm Analysis Association and the Alabama Cooperative Extension Service. Mixed integer programming and dynamic programming analyses show that, over a five-year planning horizon, a farmer optimally spends more years out of the subsidy program when initial base endowment is low. With more initial base available and changes in annual planting decisions, the asset value of the initial base “jumps” upward. In the presence of price variability, the base's asset value falls relative to asset value under price certainty, but the pattern of rising asset value holds.
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