Economic Impact of Fusarium Head Blight in Malting Barley: Blending Margins and Firm-Level Risk

FHB and DON present significant challenges to producers, grain elevators, and the brewing industry. Yield reductions and price discounts incurred by producers in North Dakota, Minnesota, and South Dakota averaged about $45.3 million annually during the years 1998 through 2000. Losses are more substantial when secondary economic impacts are considered. For every$1 of scab losses incurred by the producer, $2 in losses are incurred in other areas of rural and state economies. One way of mitigating these losses is to blend barley with DON and barley without DON. Results from the grain blending model show a sharp decline of DON discounts and losses after blending. The average discount fell from$0.57/bu to $0.17/bu in 1998,$0.48/bu to $0.14/bu in 1999, and$0.38/bu to $0.15/bu in 2000. However, producers may not benefit from blending margins (gains from improved quality less blending costs) because these margins are the primary source of revenue for grain elevators. It should also be noted that the aggregate costs of DON to grain handlers are difficult to estimate because DON is subject to an unusual amount of measurement uncertainty, and penalties for excess DON pose an unusual level of risk.Crop Production/Industries,

IMPACTS OF DON IN THE MALTING BARLEY SUPPLY CHAIN: AGGREGATE COSTS AND FIRM-LEVEL RISKS

DON is a toxic byproduct of fusarium head blight (FHB), a fungal disease of small grains. Beginning in 1993, a prolonged outbreak of FHB occurred in the Upper Midwest, the traditional source of most six-rowed malting barley produced in the United States. Price discounts associated with DON in barley have been significant. This paper has two objectives. The first is to estimate the impact of DON on the value of malting barley grown in the Upper Midwest. Using crop quality data, we use a linear programming model to derive optimal blends of barley supplies, given discount schedules and the distribution of quality factors. The premise is that blending activities, on a regional scale, allow a larger fraction of the crop to be sold as malting. The second objective is to assess the risks associated with DON in the context of a firm-level blending model. We frame a nonlinear optimization problem in which an elevator seeks to maximize the expected sales value of the barley in its bins. Price discounts for several quality factors are incorporated in the analysis, along with probability distributions for DON. Treating DON as a random quality factor adds some interesting complexity to the standard grain blending problem. Attachments: <a href="/Data/ndsu/aem187a.xls">aem187a.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187b.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187c.xls</a> <a href="/Data/ndsu/aem187a.xls">aem187d.xls</a>barley, malt, DON, fusarium head blight, grain quality, blending, Production Economics,

OPERATIONAL EFFICIENCY OF US/CANADA WHEAT POOL: A GAME THEORY ANALYSIS

This paper develops a game theory optimization model of market efficiency and derives conditions under which voluntary pooling is sustained for US/Canada durum and hard red spring wheat producers. Analysis reveals that United States and Canadian farmers can increase farm returns with efficiency gains from pooling and by internalizing benefits from grain blending and logistics. The model is used to analyze diverse factors affecting the sustainability of such a pool.Crop Production/Industries, Marketing,

OPERATIONAL EFFICIENCY OF A U.S./CANADIAN WHEAT POOL: A GAME THEORY ANALYSIS

The problem of declining wheat prices and excess supply has been the subject of recent economic studies partly because it coincides with the Federal Agriculture Improvement and Reform (FAIR) Act of 1996, and partly because efforts to decrease supply domestically have led to increased imports from Canada. This paper develops a game theory optimization model of market efficiency and derives conditions under which voluntary pooling is sustained for U.S./Canadian durum and hard red spring wheat producers. Analysis reveals that U.S. and Canadian farmers can increase farm returns with efficiency gains from pooling and by internalizing benefits from grain blending and logistics. The model is used to analyze diverse factors affecting the sustainability of such a pool.Voluntary pooling, game theory, efficiency gains, durum and HRS wheat marketing, Crop Production/Industries, Marketing,

Crop and biofuel outlook for 2012

Crop agriculture has been on a roll. Corn and soybeans have provided positive returns three of the past four years. The 2011 crop year is shaping up to be the most profitable year on record. And futures prices for 2012 are offering sizable returns over projected production costs. So 2012 is shaping up to be an exciting market year for crop agriculture

RINs and biofuel mandates : comparing ethanol and biodiesel markets

The United States Congress set out to increase the blending of biofuels by updating and implementing the Renewable Fuel Standard (RFS2) in 2007. The new mandate required that a combination of 36 billion gallons of ethanol, biodiesel, and cellulosic biofuel be blended annually, by 2022. To offset the cost of compliance with the mandate, Congress authorized the U.S. EPA to implement a renewable energy credit scheme for each type of biofuel produced. The credit, called a Renewable Identification Number (RIN), is generated for each gallon of biofuel produced and can be traded with other blenders who find it more expensive to blend biofuel. Few studies have focused directly on the RIN market. Subsequently, there is a dearth of understanding about how the RIN program actually effects the production of blended fuels under the RFS2. This research aims to extend the available research by quantifying the effect that RINs have on the ethanol and biodiesel markets, using blending margins as a predictor for RIN prices. The biofuel supply chain is also considered for this analysis insofar as geography plays an important role in the costs associated with procuring biofuel to comply with the RFS2 mandate. To measure the effect that RINs have on the production of blended fuel, this analysis assumes that blenders face a trade-off between physically moving biofuel to combine with conventional fuel, and purchasing a RIN. The analysis presented in this study provides a useful view of how blenders perceive the trade-off between blending biofuel and purchasing RINs in the immediate run. By understanding how blending margins effect RIN prices and in turn, how blenders respond to those prices, the hope is that this study can extend the understanding of the effectiveness of the current RIN program, relative to the goals set forth under the RFS2. This, in turn, should set the foundation for more sophisticated models in later research

Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies

The U.S. ethanol industry is lobbying hard for an extension of existing ethanol import tariffs and blenders tax credits before they expire at the end of 2010. The purpose of this study is to examine the likely consequences on the U.S. ethanol industry, corn producers, taxpayers, fuel blenders, and fuel consumers if current policy is not extended. Impacts of different ethanol policies in both 2011 and 2014 were estimated. Estimates were obtained by developing a new stochastic model that calculates market-clearing prices for U.S. ethanol, Brazilian ethanol, and U.S. corn. The model is stochastic because market-clearing prices are calculated for 5,000 random draws of corn yields and wholesale gasoline prices. Key assumptions in this study are that the strong growth in flex-fuel vehicles in Brazil continues; intermediate ethanol blends with few restrictions are implemented in U.S. markets in 2014; U.S. ethanol production capacity reaches 15 billion gallons in 2014; and Brazilian ethanol production increases by at least 45% by 2014. Projected strong demand for ethanol in Brazil combined with a largely saturated U.S. ethanol market means that elimination of ethanol import tariffs would have almost no impact on U.S. corn and ethanol markets in 2011. Elimination of the tax credit would impact markets modestly, with ethanol production declining by an average of about 700 million gallons. This reduction in ethanol production would cause corn prices to drop by an average of 23 cents per bushel. Ethanol prices would drop by 12 cents per gallon. Elimination of the tax credit would shift the burden of meeting mandates from taxpayers to blenders and consumers. Taxpayers would save more than $6 billion through elimination of the tax credit, or almost$7.00 per gallon of ethanol produced in excess of mandated amounts. The impacts of a change in U.S. ethanol policy in 2014 are larger than 2011 impacts because Brazil has a chance to respond by ramping up its ability to export in response to trade liberalization. But because of strong domestic demand growth in Brazil and limits on how fast Brazilian ethanol production can increase, the impacts of a change in policy are still modest. As long as the mandate is maintained, U.S. ethanol production drops by no more than 500 million gallons, corn prices drop by no more than 16 cents per bushel, and ethanol prices drop by no more than 35 cents per gallon. If the impact of intermediate blends is not as strong as assumed in this study, then there will be less incentive for Brazil to export ethanol and the impacts of tariff elimination would be even more modest

GRAIN QUALITY IN THE CANADIAN BARLEY SECTOR: A REVIEW OF REGULATIONS, INDUSTRY PRACTICES, AND POLICY ISSUES

This paper provides an overview of regulations and industry practices relating to grain quality in Canada's barley sector. Special attention is devoted to malting barley. Topics include: supply and disposition of barley in Canada; role of institutions (Canadian Grain Commission and Canadian Wheat Board); grades and standards; variety registration; malting barley selection; and recent changes in handling, procurement, and marketing.barley, grain quality, marketing, procurement, Canada, Marketing, Production Economics,