Cointegration results of farm incomes and production costs in US agriculture

This study analyses the dynamic relationships between farm incomes and production costs in the US agricultural industry by applying the cointegration technique. The results provide evidence of long-run equilibrium relationships between cash marketings and production costs. However, the results do not show such relationships between total revenues, which include cash marketings and government payments, and production costs. Chief conclusions of this study are that if market forces alone were to guide farmers’ decisions, one could expect long-run equilibrium relationships between the cash receipts and costs; however, government interventions seem to disrupt this equilibrium. The results also suggest that production costs can be forecast using cash marketings which are found to be weakly exogenous. The Error Correction Model and Vector Autoregression Model are used to estimate and compare simulation performances of the cointegrated system of cash marketings and production costs.