Perennial Crop Supply Response: A Kalman Filter Approach

A state-space model for perennial crop supply response is developed. New plantings and removals depend on the existing age structure of the crop and expected values for future prices and other exogenous variables. Acreage in individual age categories evolves depending upon existing acreage, new plantings, and removals. The Kalman filter and an iterative parameter search provide maximum-likelihood estimates of the unknown parameters and age group acreages from observed data on total acreage and production. An empirical application for alfalfa shows that existing acreage has differential impacts on new plantings and removals depending upon age.