Document Type

Thesis - Open Access

Award Date

2015

Degree Name

Master of Science (MS)

Department / School

Economics

First Advisor

Lisa Elliot

Keywords

HRSW, hard red spring wheat, wheat marketing, wheat trade

Abstract

There is a changing landscape in the wheat market from the emergence of foreign ownership of local elevators, increased consolidation in the milling sector, technology advancement, and changes in transportation. The changing landscape of the wheat market has been associated with greater degrees of vertical coordination through integration, strategic alliances, and contractual relationships. Particularly greater vertical integration has occurred between the millers, county elevators, and export and country terminal elevators. The greater integration of the milling sector has raised concerns by the Department of Justice Anti-trust division to the competitiveness of the flour market, and has only conditionally approved recent mergers. But the focus of this research is a preliminary study of marginal values for wheat characteristics to inform future research on measuring the effects of structural changes on marginal values. Since these changes to the wheat market structure have occurred, there has not been a recent hedonic study that has examined wheat characteristic values; even though it has been shown that marginal implicit values can be unstable over time since models are subject to both derived demand and supply. More importantly, wheat has a degree of site-specificity in that producers have high costs in marketing to alternative locations. Thus, this study examines hard red spring wheat marginal characteristics values using more recent data during these structural changes. Previous research on values of wheat characteristics was conducted in 1996, prior to many changes and integrations in the market landscape. The hard red spring wheat (HRSW) region-North Dakota, South Dakota, Minnesota and Montana- is where we have observed the emergence of foreign ownership of facilities. Thus, a spatial dimension was added in the model by including inter-state (competition between states) and intra-state (competition between districts within a state) competition in HRSW quality characteristics. The results suggest that protein is an important characteristic of HRSW with a premium of $0.308/bushel. Although this study indicates a higher marginal value of protein, it also shows a wider confidence interval for the marginal value of protein as compared to Parcell and Stiegert’s estimates. The wider confidence interval found in this study indicates a greater uncertainty of premium values for protein. In addition, results indicate that premiums for protein and test weight for a specific district in a state can be affected by protein and test weight of other states. We therefore, conclude that discounts and premiums for HRSW characteristics in a specific district can be affected by the quality characteristics of other states; thus, indicating the importance of spatial competition for protein and test weight between states. Wheat producers have to make important decisions about the varieties they will plant, the quality characteristics of the variety type; but also when to market their wheat depending on the quality characteristics and premiums being offered. A producer’s objective is to maximize profitability of their operations, while mitigating financial risk. If protein premiums are volatile, then producers may be hesitant to adopt wheat varieties that have a higher probability of resulting in higher end-quality characteristics levels compared to yield benefits. This is particularly relevant when there are higher inputs costs to higher quality wheat and when there is great uncertainty to quality grades and premiums. Producers’ adoption of wheat varieties depends on their risk tolerance and tradeoff to yield versus quality characteristics. This is in contrast to wheat breeders’ objective to optimize the balance for quality and yield for both producers and millers. Wheat breeders that develop varieties that enhance characteristics levels that are widely adopted across state lines can improve the average characteristic levels of a larger area and decrease the marginal value of that characteristic. However, if wheat breeders develop varieties that are adopted only locally, or even at a state level, there may not be an impact on the marginal value of the associated characteristics. Further, county elevators and terminal elevators have to keep quality wheat segregated from non-quality wheat during the storage and transportation processes. The objective of the terminal and county elevators for segregation may not be aligned with the millers’ demand if there are not adequate premiums provided. This research demonstrates the tradeoffs and risks that producers face with respect to wheat varietal selection decisions. Producers could explore hedging opportunities to manage price risk. Also, end-users that place a higher valuation on quality characteristics, could consider offering greater incentive mechanisms to producers and elevators that offset their risk associated to certain variety selections and maintain segregation. Challenges exist to achieve desired quality wheat attributes through breeding and management along with reducing environmental factors’ influence on determining characteristic levels.

Library of Congress Subject Headings

Hard red spring wheat--Marketing

Red spring wheat

Wheat--South Dakota

Wheat--Economic aspects--United States

Description

Includes bibliographical references (pages 58-62)

Format

application/pdf

Number of Pages

91

Publisher

Soouth Dakota State University

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Rights Statement

In Copyright