CASH ETHANOL CROSS-HEDGING OPPORTUNITIES

Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the ethanol industry. As with any competitive industry, there exists some level of output price risk in the form of volatility. Yet, no actively traded ethanol futures market exists to transfer output price risk to. This study reports estimated minimum variance cross-hedge ratios between Michigan spot cash ethanol and the New York Mercantile Exchange (NYMEX) unleaded gasoline futures for 1-, 4-, 8-, 16-, and 24-week hedging periods. The research yields two results. First, the appropriate quantity of ethanol to hedge with one 42,000 NYMEX unleaded gasoline futures contract for each respective hedging period is realized. Second, the magnitude of the quantities of ethanol required to implement an effective minimum variance cross-hedge ratio is recognized as a possible deterrent to ethanol buyers and sellers from entering into a cross-hedge.Marketing, Resource /Energy Economics and Policy,

Changing Agricultural Marketing Channel Structures: Interdependences & Risk Preferences

We propose a conceptual model that integrates transaction cost and risk behavior theories in an interdependence framework. Hypotheses are offered that relate the concepts that are central to the proposed model to the three dimensions of channel structures: the allocations of uncertainty, decision rights, and gains. An empirical research design is proposed to test the validity of the conceptual model within the context of the broiler and grain industries. The conceptual model will be validated in a structural equation modeling framework.Marketing,

MARKET INTEGRATION: CASE STUDIES OF STRUCTURAL CHANGE

The grain/oilseed industry is undergoing considerable structural change in the form of mergers and the addition of new processing facilities to add value beyond commodity grade. The rapid structural changes in this industry call into question the relevance of previous research conducted in these areas. Focusing on two structural change events in northeast Missouri as case studies provides an incisive glimpse at the larger impact of structural change on the grain/oilseed industry. This study addresses the merger of Archer Daniels Midland and Quincy Grain, and the opening of a producer-owned ethanol plant in northeast Missouri to determine if these structural change events altered pricing patterns and linkages in Missouri grain/oilseed markets, and assess the need for re-specification of conventional economic models for price analysis in cases of potential structural change. This research utilizes a three-tier statistical analysis of cointegration tests, Flexible Least Squares analysis, and impulse response functions derived from Vector Autoregressive modeling to investigate the Law of One Price and price relationships among four Missouri grain/oilseed markets. The results are consistent with the Law of One Price, supporting the ideology that markets work, and implying that localized structural change may not significantly affect research shelf-life.Ethanol, Consolidation, Structural Change, Industrial Organization,

Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?

Risk reduction and transaction costs are often used to explain contracting in the U.S. hog industry with little empirical support. Using a unified conceptual framework that draws from risk behavior and transaction cost theories, in combination with unique survey and accounting data, we demonstrate that risk preferences and asset specificity impact Illinois producers’ use of contracts and spot markets. In particular, producers’ investments in specific hog genetics and human capital are related to selection of long-term marketing contracts over spot markets. Producers who perceive greater levels of price risk and/or are more averse are more (less) likely to use contracts (spot markets).asset specificity, contracts, hogs, risk attitude, risk behavior, risk perception, transaction costs economics, Livestock Production/Industries, Risk and Uncertainty,

Commercial Grain Merchandisers: What Do They Need to Know?

Little information exists on grain merchandisers, their characteristics, and the skills needed to be successful. This research contributes toward filling this gap. A summary of survey responses from 230 experienced grain merchandisers quantifies personal characteristics, skills perceived as important, and desire for executive education. Parametric analyses identify factors contributing to merchandisers’ salaries and their interest in establishing a certification process. Interestingly, experience but not formal education significantly enhances salaries.grain merchandiser, marketing, (executive) education, certification, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Consumer/Household Economics, Crop Production/Industries, Teaching/Communication/Extension/Profession,

Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?

Studies of hog industry structure often invoke risk reduction and transaction costs explanations for empirical observations but fail to directly examine the core concepts of risk behavior and transaction costs theories. Using a more unified conceptual framework and unique survey and accounting data, this study demonstrates that that risk preferences and asset specificity impact Illinois producers’ use of contracts and spot markets as suggested by theory. Factor analytic methods limit measurement error for indirectly observable risk and transaction costs variables employed in logit regressions. In particular, related investments in specific hog genetics and specific human capital regarding the production process increase the probability of selecting long-tem contracts over spot markets. Producers who perceive greater levels of price risk and/or are more averse to it appear more (less) likely to use long-term contracts (spot markets), and hence, to make such investments.risk behavior, transaction costs economics, risk attitude and risk perception, asset specificity, contracts, hogs, Agricultural Finance,

Is Storage at a Loss Merely an Illusion of Spatial Aggregation?

The storage-at-a-loss paradox—stocks despite inadequate price growth to cover storage costs—is an unresolved issue of long-standing interest to economists. Alternative explanations include risk premiums for futures market speculators, convenience yields from holding stocks, and mismeasurement/aggregation of data. Statistical analyses of regional and elevator corn and soybean price growth in Illinois suggest limited aggregation effects and reveal a pattern of regional- and elevator-level backwardations in the presence of Illinois corn stocks that is inconsistent with aggregation explanations for storage at a loss. Interviews with elevator managers support the existence of convenience yields.aggregation, convenience yield, corn, intertemporal arbitrage, regional and elevator data, soybeans, storage at a loss, Agribusiness, Marketing,

Is Storage at a Loss Merely an Illusion of Aggregation?

The storage at a loss paradox of positive inventories despite inadequate spot-futures price spread coverage of storage costs is an unresolved issue of long-standing interest to economists. Alternative explanations include risk premiums for futures market speculators, convenience yields from having inventories on hand, and the mismeasurement/aggregation of data. T-test analyses of disaggregated data suggest soybean price behavior consistent with intertemporal arbitrage conditions and corn price behavior that may imply convenience yields.Marketing,

Risk Attitude & the Structure of Decision Making: Evidence from the Hog Industry

We investigate the importance of an appropriate representation of behavior, risk attitude, and related characteristics for owner-managers making marketing decisions. We assess whether managerial/firm characteristics directly affect the decisions or if their influence occurs indirectly through impacts on risk aversion. The findings, which support an indirect effect, indicate that failure to represent the relationship between risk aversion, other characteristics, and behavior appropriately can mask the effect of risk aversion. A more complete understanding of the structure of decision making may assist economists and policymakers in designing and targeting mechanisms to transfer risk.behavior, contract, hogs, marketing, risk attitude, Agribusiness, Institutional and Behavioral Economics, Marketing, Q13,

Consumers’ Willingness-to-Pay for Retail Branded Beef Products with Bundled Attributes

With a declining share of the domestic meat market, some beef producers are becoming more attentive to opportunities for value-added products tailored to the desires of certain consumer segments. Using a survey of St. Louis and Kansas City, Missouri meat consumers, this study investigates perceptions of and willingness-to-pay for various value-added attributes that could be supplied as retail branded beef products. Factor analysis identifies two alternative attribute bundles as branding strategies based on perceived importance and complementarity of attributes. Nonparametric procedures provide conservative estimates of willingness-to-pay. Parametric methods identify types of consumers willing to pay significantly higher premiums.beef, branding, marketing, value-added, willingness-to-pay, Agribusiness, Marketing, Q13, Q15,