Price expectations in perennial crop supply models

Abstract

In the analysis of investment and production decisions for perennial crops, expectations play a critical role. This thesis studied three hypotheses about price expectations and reviewed five supply response models for perennial crops. An empirical model for the apple industry was developed to test alternative representations of expected prices. The naive and adaptive expectation model performed well with national data, whereas moving averages of price and the adaptive expectations model performed better with Washington data. To improve estimates of supply response for perennial crops, better data are needed to describe new plantings, removals, the age distribution of trees, production costs, and climatic conditions. Rapid technological change in the U.S. apple industry may cause producers to revise the way they form expected prices, encouraging them to use more historical information and paying more attention to projections of future demand. Rational expectations perspectives may become increasingly relevant.