Corn, soybeans or fallow: Dynamic farmland allocation under uncertainty

• Main Authors: BOYABATLI, Onur, NASIRY, Javad, ZHOU, Yangfang (Helen)
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Cash crops; Optimal dynamics; Production management; Risk management; Supply chain finance; Agribusiness; Operations and Supply Chain Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6199; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7198/viewcontent/Corn_Soybeans_or_Fallow.pdf
• Institution: Singapore Management University

This chapter develops a theoretical basis for understanding the trade-offs facing a farmer for allocating his farmland among several crops over multiple growing seasons. Specifically, we focus on the farmland allocation among two cash crops (corn and soybeans) and letting the farmland lay fallow to rejuvenate the soil and increase the revenue for the crop grown on this farmland in the subsequent seasons. In each growing period, the farmer chooses the allocation in the presence of revenue uncertainty for each cash crop, and crop rotation benefits across periods, where revenue is stochastically larger and farming cost is lower when a cash crop is grown on a rotated farmland (where the same crop was not grown in the previous period). We solve for the optimal dynamic allocation policy.