Bruce L. Dahl

Quality Uncertainty in International Grain Markets: Analytical and Competitive Issues

One of the important issues dominating the competitive environment of the world grain market is quality consistency and uncertainty. Quality uncertainty in the grain marketing chain can be defined in a number of ways and can result in variability of end-use processing characteristics. Quality uncertainty is important because variability can increase costs for buyers, processors, and grain handlers. Quality uncertainty affects competition within countries and across international borders. Various strategies have been pursued by major exporters. Processors concerned with obtaining a high-quality product may pursue vertical integration, purchase, loading, and contracting strategies to reduce quality uncertainty. Future research for grain quality could include examination of factors contributing to quality uncertainty and private and public strategies and policies to reduce or manage quality variability.

Crop insurance in malting barley: a stochastic dominance analysis.

Purpose - Malting barley is an important specialty crop in the Northern Plains and growers mitigate risk with federally subsidized crop insurance and production contracts. The purpose of this paper is to quantify risks growers face due to “coverage gaps” in crop insurance that result in uncertain indemnity payments when their crop does not meet contract specifications. Design/methodology/approach - A stochastic dominance model is developed to evaluate alternative strategies for growers with differing risk attitudes and production practices (irrigation vs dryland). Findings - The results illustrate how alternative crop insurance provisions affect efficient choice sets for growers. Risk premiums for irrigated growers all point to valuations favoring more coverage, contracts, and malting option B. As the crop insurance industry matures in the functions it performs, it will become increasingly more important to address quality attributes. Originality/value - This paper addresses quality issues and coverage gaps in crop insurance provisions.

Impacts of new routes and ports on spatial competition for containerized imports into the United States

Major changes are occurring in the logistics of container shipping including growth in demands, increased ship size and development of new ports and routes to serve the US market. The Panama Canal is in the process of being expanded and potential exists for shipping through the Northwest Passage in addition to new ports being developed on the West Coasts of Canada and Mexico. All these alternatives are expected to compete with the US logistics system. The purpose of this paper is to analyse prospective impacts of these changes on the container flows for shipments to the US markets. A spatial network flow model of the logistics for containerized imports into the United States is developed. It includes ocean shipping in different size vessels operating as strings, port handling, congestion costs and rail shipping. The base model calibrates well with historical shipments through ports and the interior rail system. Then, we analyse impacts of new ports and routes on the US system.

Grain pricing and transportation: dynamics and changes in markets

There are important challenges to the grain handling and shipping industries. The study evaluated changes in marketing costs for the primary grain marketing functions and quantified measures of risk. The results indicate that 1) basis risk has increased; 2) all marketing costs have increased; 3) the increase in rail tariffs were less than those for the other modes; 4) car values, on average declined; 5) FSC’s had moderate changes in absolute terms; 6) handling margins have had fairly substantial increases, particularly at port; and 7) the riskiness in rail shipping costs are less than those of competing modes and functions. The regression model indicated the following variables had significant impacts on origin basis values: shipping costs, ocean rate spreads, outstanding export sales, handling industry concentration, measures of rail cars late, the ratio of supplies to storage capacity, futures prices and spreads (in addition to a few other minor impacts).

Grain Contracting Strategies to Induce Delivery and Performance in Volatile Markets

One of the impacts of higher prices along with greater volatility in futures and basis is that there is pressure for an escalation in cash contracting for grain. This volatility has resulted in an unprecedented level of contracting with growers in recent years. There is a wide array of cash contracts with varying terms. There is also a growing realization of growers not delivering on contracts, in part due to escalation in postcontract prices. These are evolving as major strategic issues for buyers and the marketing system, particularly as buyers seek to use such contracting strategies as an element of risk mitigation. There are three purposes of this article. First is to provide a broad survey of contract terms used in grain contracting with growers. Second, we illustrate some issues in contracting of some of the grains (durum, malting barley) in the upper Midwest. Third, we show some of the common contract clauses being adapted in these contracts. Finally, we summarize these issues with respect to industry implications.

Valuing new random genetically modified (GM) traits with real options: The case of drought-tolerant wheat

Purpose - – The purpose of this paper is to develop an analytical model to value traits at different developmental phases and to determine the value of drought tolerance (DT) in wheat using GM technology. Design/methodology/approach - – A stochastic binomial real-options model of GM traits was developed to estimate the value of a DT wheat trait. Findings - – The results indicate that the value of DT wheat using GM technology is in-the-money at each development phase. The greatest value would accrue for the Prairie Gateway and Northern Great Plains regions in the USA. Research limitations/implications - – The approach is useful for valuing high-cost risky investments in technology and results provide guidance for development strategies. Originality/value - – The model is original and its applications to wheat are unique.

IMPORT TENDERS AND BIDDING STRATEGIES IN WHEAT

Bidding competition plays an important role in price discovery and the determination of suppliers in international grains. We analyze bidding competition in this paper in the international market for wheat for a specific importer. Optimal bids and expected payoffs were derived for a prototypical bidder. We analyzed the impacts of the number of competitors, information, and cost differentials. In each case, we quantified the likely impact on optimal bids and expected payoffs. Another interesting effect was that of correlated bids, which had the effect of increasing the probability of winning, optimal bids, and expected profits. Finally, we explored the prospective impacts of the winners curse on optimal bids.

Risk analysis in port competition for containerized imports

A number of factors are causing changes in container logistics, particularly for imports into the United States. These include growth and volatility in demands, expansion of new routes (Panama Canal and Northwest Passage), and development of new ports (Prince Rupert and ports on the Mexican west coast). Uncertainty is a major factor confronting logistics for container shipping. A stochastic network-flow model is developed in this study to analyze risk in port throughput as a result of randomness in critical variables in the logistics system for container imports into the United States. The results illustrate the stochastic distribution of container shipments at ports and routes serving the U.S. container market. The derived distributions for port throughput have important implications for port management.

Long-Term Forecasting of World Grain Trade and U.S. Gulf Exports

Important changes occurring in the world grain trade will affect the spatial distribution of grain flows and affect large-scale transportation projects. Most important among these are developments in ethanol and in Brazil and China. This paper develops a spatial optimization model based on a long-term competitive equilibrium to make projections in the world grain trade and shipments from individual ports to 2025. Results indicate that world trade should increase by about 47%, with the fastest growth occurring in imports to China and Pakistan and the slowest growth in Japan and the European Union, traditionally large markets. Most increases in terms of volume are expected in soybeans (49%), followed by corn (26%). Most of the U.S. export growth is expected through the barge system to U.S. ports on the Gulf of Mexico, with negligible growth through the Pacific Northwest and lakes. Although a multitude of reasons explain this expected trend, one is the growth in ethanol concentrated in the western states, wh...

Economic costs of Fusarium Head Blight, scab and deoxynivalenol

Fusarium Head Blight (FHB) has led to major economic costs for wheat and barley producers. Grain products and feed grain contaminated with deoxynivalenol (DON) (commonly known as vomitoxin) are subject to Food and Drug Administration advisory limits and as a result end-users place restrictions on their use. This has led to steep price discounts, as well as higher risks for producers and grain merchandisers. Varietal research has led to development of varieties that are resistant or moderately resistant to FHB. Studies indicate combinations of genetic resistance, fungicides and some management practices (combine settings, tillage practices, etc.) can be used to decrease economic costs due to FHB. The purpose of this study was to estimate the economic costs of scab. To do so we developed several economic models, analysed extensive data and conducted surveys of wheat flour millers, barley maltsters, and grain handlers. A detailed assessment of costs indicates the most important costs accrued by the wheat and...