ABSTRACT
The major grain producing nations are moving, albeit slowly, toward the reduction of domestic and export subsidies to agriculture. Since 1986, the United States agricultural policy has changed so that it no longer acquires and holds grain stocks to keep grain prices above longer run free market levels. Commercial firms are assumed to have profit maximization as their objective function. Commercial firms will tend to maximize profits by planning to carry only pipeline needs to the next season. Seven producers including Argentina, Brazil, China, the EC-12, the Soviet Union, South Africa, and the United States raise 300 to 350 million metric tons, or about 75 to 80 percent of the world’s corn. The percentage depends on the global elasticity of demand for wheat and the cross-price elasticity of substitutes. Barley production changes based on yield shocks are dramatically affected by the production shocks in the Soviet Union the major producer of barley.
