Alternative estimates of fed beef supply response to risk

Supply response models for fed beef incorporating risk by including both the mean and variance of output price are developed, estimated, and compared. Six different estimates of the mean and variance are obtained from futures prices; ARIMA processes; and naive, adaptive, and rational expectations models. Empirical estimates are compared using nonnested testing procedures and indicate that the choice of the expectations model significantly influences elasticity estimates and whether supply response is positive or negative. Empirical evidence does not support anyone model in particular, suggesting that expectations are heterogenous rather than homogenous. Key words: fed cattle, nonnested hypothesis testing, price expectations, risk, supply response. Most agricultural production is characterized by a lag between the time input decisions are made and the time output actually reaches the market. As a result, supply response functions are based on the hypothesis that quantity produced de