Why Don't Country Elevators Pay Less for Low Quality Wheat? Information, Producer Preferences and Prospect Theory

Previous research found that country elevators that are the first in their area to grade wheat and pay quality-adjusted prices would receive above-normal profits at the expense of their competitors. Because of spatial monopsony, these early-adopting elevators would pass on to producers only 70% of the quality-based price differentials received from next-in-line buyers. If competing elevators also adopted these practices, profits for all elevators would return to near normal, and elevators would pass on to producers nearly all price differentials received from next-in-line buyers. However, that research could not explain why more elevators were not becoming "early adopters" by paying quality-adjusted prices. More recent research found that producers' risk aversion and lack of information about the quality of their wheat could explain more of the failure of country elevators to pass on premiums and discounts. If producers are risk averse, an elevator that imposes discounts for lower quality wheat, even while paying a higher price for high quality wheat, risks losing business if producers believe that a competing elevator may be more likely to pay them a higher price net of discounts. However, even more important is the level of information producers have about the quality of their wheat before selling it to an elevator. Still, these explanations account for only part of elevators' apparent reluctance to pay quality-adjusted prices. Since inconsistencies have been observed between expected utility and individuals' behavior, this research considers the case where producers' preferences can be more appropriately modeled by prospect theory, and whether such preferences can explain more of elevators' reluctance to pay quality-adjusted prices. A simulation model is used to measure the effects of risk-averse producers (in both expected utility and prospect theory frameworks) and limited quality information on profits that can be earned by an elevator that pays quality-adjusted prices. Results indicate that prospect theory helps to explain part, but not all, of the reluctance to pay quality-adjusted prices.Crop Production/Industries, Demand and Price Analysis,

THE USE OF MEAN-VARIANCE FOR COMMODITY FUTURES AND OPTIONS HEDGING DECISIONS

This study provides additional evidence of the usefulness of mean-variance procedures in the presence of options which can truncate and skew the returns distribution. Using a simulation analysis, price hedging decisions are examined for hog producers when options are available. Mean-variance results are contrasted with optimal decisions based on negative exponential and Cox-Rubinstein utility functions over 56 ending price scenarios and two levels of risk aversion. The findings from our simulation, which considers discrete contracts, basis risk, lognormality in prices, transactions costs, and alternative utility specifications, affirm the usefulness of mean-variance framework.Marketing,

How does insect resistance to phosphine affect insect control costs of stored-grain?

Crop Production/Industries,

The Impact of Biofuel Mandates and Switchgrass Production on Hay Markets

The Renewable Fuel Standard mandate in the Energy Independence and Security Act of 2007 requires 16 billion gallons out of 36 billion gallons of ethanol be produced from cellulosic feedstocks in 2022, but the mandate was apparently enacted without critical assessments of the agricultural impacts of attempting to achieve energy independence. The feedstock production will likely compete with lands currently used for producing other traditional crops of which hay is likely to be affected the most since it has comparatively lower net returns. Thus ruminant production will consequently be affected greatly. This study uses ordinary least squares (OLS) to estimate and predict Oklahoma hay price which is used as objective value in linear programming (LP) model that determines the profitability options between hay and switchgrass production. The OLS results show that Oklahoma hay price is fairly stable, and hay is shipped across adjoining states. The LP results show that switchgrass production would be more profitable than hay and that switchgrass for biofuel production likely will bid land away from hay if biofuel production becomes fully operational.biofuel mandates, switchgrass production, hay production, hay markets., Agricultural and Food Policy, Environmental Economics and Policy, Production Economics, Research and Development/Tech Change/Emerging Technologies, Resource /Energy Economics and Policy,

The Impact of Foot-and-Mouth Disease (FMD) on Hog, Pork, and Beef Prices: the Experience in Korea

Korea experienced two outbreaks of foot-and-mouth disease (FMD), one in the year 2000 and one in 2002. After the first outbreak, prices for hogs, pork, and beef dropped 15-20% before the government began an intervention program. The effects of these two outbreaks are examined using Box and Tiao's intervention analysis model and a GARCH model Although the second outbreak resulted in many times more animal deaths than the first outbreak, its effect on prices was much smaller. The reason may be because the government's response to the first outbreak set a precedent for the second one.Livestock Production/Industries,

THE ECONOMICS OF CLEANING WINTER WHEAT FOR EXPORT: AN EVALUATION OF PROPOSED FEDERAL "CLEAN GRAIN" STANDARDS

Buyer complaints about poor quality U.S. wheat have led to proposals to enforce minimum dockage standards for exports. An economic-engineering approach is used to evaluate costs and benefits of cleaning wheat in order to meet these standards for 13 possible cleaning configurations. These results are used in an optimization framework to estimate costs and benefits of cleaning all U.S. export wheat. The estimates indicate that cleaning U.S. export winter wheat to .35% dockage would cost an average of 1 cent/bu., requiring an initial capital investment of $28 million. Value of wheat lost in cleaning is a significant cost that previously has been overlooked.Agricultural and Food Policy,

The Cost of Coexistence between Bt Maize and Open Pollinated Maize Varieties in Lowland Coastal Kenya

Kenya is currently in the process of introducing genetically modified maize (Bt maize). A major concern is that the Bt gene might cross into local varieties through cross pollination. Current regulatory strategies to ensure coexistence of the two cropping systems at the farm level rely on spatial isolation measures-separation distances and/or buffer zones. However, the interaction of practical measures and costs of spatial isolation with the farmer’s economic incentive to plant a Bt maize crop have not been studied in Kenya. The purpose of this study was to analyze the technical and economic feasibility of the implementation of spatial coexistence measures. Using spatial geo-referenced data from the actual agricultural landscape in lowland coastal Kenya, the study finds that flexible separation distances hold the possibility of ensuring coexistence in the region, but will be difficult to implement. Rigid buffer strips on the other hand are not consistent with the producers’ economic incentive to plant a Bt maize crop.Coexistence, Regulatory, Spatial, Agro-ecological zone, GM crops, Resource /Energy Economics and Policy,

Impact of United States Corn-Based Ethanol Production on Land Use

This study measures the impact of corn-based ethanol production in the United States on land use in other countries, or indirect land use. Indirect land use is a change from non-cropland to cropland (e.g. deforestation) that may occur in response to increasing scarcity of cropland. As farmers worldwide respond to higher crop prices in order to maintain the global food supply and demand balance, pristine lands are cleared and converted to new cropland to replace the crops for feed and food that were diverted elsewhere to biofuel production. The results show that increasing ethanol production in the US has a positive and significant relation to U.S corn price. However, U.S. corn price does not have a significant impact on changes in corn acreage in Brazil and other countries such as Canada, Japan and China. Although many authors have hypothesized that increased ethanol production in the U.S. will increase corn prices, which will result in increased change in land use in other countries, these results suggest that the effect is minimal at best. This is important because although production of ethanol for fuel is often criticized for negatively impacting the environment because of indirect land use, this study was unable to prove the existence of indirect land use.ethanol, indirect land use, Agricultural and Food Policy, Demand and Price Analysis, Land Economics/Use, Marketing,

Should Grain Elevator Managers Adopt Integrated Pest Management?

Insect infestation during storage and processing causes millions of dollars of wheat damage annually in the United States. Insect infestation reduces wheat storing processing profit as well as consumer confidence in wheat food products. Meanwhile, increased concerns about insecticide use have increase interest in Integrated Pest Management (IPM) strategies. This research compares the costs of IPM and chemical-based approaches to insect control to determine why most elevator managers have not adopted IPM practices.Agribusiness,

Linguistics meets economics: Dealing with semantic variation

We explore here what happens in conversation when listeners encounter variation as well as change in semantics. Working within a general Gricean framework, and in ways somewhat akin to the “Cheap Talk” model of Crawford and Sobel (1982) and the “Rational Speech Act” model of Goodman and Frank (2016), we develop here a transactional view of communicative acts, based largely on insights drawn from economics. Taking a novel perspective, we build on what happens when communication misfires rather than examining what makes for successful communication. We see this effort as a demonstration of the utility of taking an economic perspective on linguistic issues, specifically the analysis of communicative acts