Adaptive Behavior of U.S. Farms to Climate and Risk
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We analyze the effects of climate conditions and crop insurance on farm-level land allocation decisions among corn, soybeans, winter wheat, and hay in 10 Midwest states. Based on ARMS data, we estimate farmers' land allocation equations that control for market conditions, climate and soil variables, and insurance. A multivariate sample selection model is used for estimation. We find that: 1) beneficial heat has positive effects on corn and soybean acreage but negative effects on winter wheat acreage, 2) excessive heat has negative effects on corn and winter wheat acreage but have positive effects on soybean acreage, 3) an increase in precipitation by 1% increases corn acreage by 0.6% but decrease soybean and winter wheat acreage by 1.0% and 1.6%, 4) soybean acreage is more sensitive to summer drought, and 5) crop insurance alters farmers land allocation.