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Abstract
Are futures prices exogenous to agricultural supply? It depends. We argue that crop
yield shocks were predictable during the 1961-2007 period because high planting-time
futures prices tended to indicate that yield would be below trend. This feature of the
data implies that regressions of production on futures prices would underestimate the
supply elasticity, i.e., endogeneity in the futures price biases the regression coefficient
down. However, this predictability has only a small effect on planted acreage. Thus,
estimating supply models with regressions of planted acreage on futures prices entails
a small endogeneity bias. Moreover, this small bias is mitigated by adding the realized
yield shock as a control variable to such a model as a proxy for the expected yield
shock. The marginal contribution of an instrumental variable to bias reduction is thus
small.