Jason R.V. Franken

Cash Ethanol Cross-Hedging Opportunities

Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the U.S. ethanol industry. As with any competitive industry, some level of output price risk exists in the form of volatility; yet, no actively traded ethanol futures market exists to mitigate output price risk. This study reports estimated minimum variance cross-hedge ratios between Detroit spot cash ethanol and the New York Mercantile Exchange unleaded gasoline futures for 1-, 4-, 8-, 12-, 16-, 20-, 24-, and 28-week hedge horizons. The research suggests that a one-to-one cross-hedge ratio is not appropriate for some horizons.

Impact of Mandatory Price Reporting on Hog Market Integration

This research examines whether mandatory price reporting (MPR) impacted price relationships among U.S. hog markets. Markets are cointegrated before and after MPR enactment, but not fully integrated in either period. Terminal markets adjust to shocks in the Iowa-Southern Minnesota market more quickly and Iowa-Southern Minnesota prices adjust to shocks in terminal markets more slowly following MPR enactment. Granger causality tests indicate a causal flow from terminal markets to Iowa-Southern Minnesota prices before MPR and a causal reversal after MPR enactment. These results likely reflect decreases in volume of negotiated sales, particularly in terminal markets, and greater reliance on mandatorily reported prices for market information.

Evaluation of Market Thinness for Hogs and Pork

We investigate thinness of hog and pork markets in terms of quantity and representativeness of negotiated transactions. Transactional volume imparts marginally greater confidence in pricing precision for Iowa-Southern Minnesota negotiated hogs than for the national carcass cut-out, suggesting that contracts tying prices to the former rather than the latter may be more representative of industry conditions. Extending mandatory price reporting to pork may remedy this discrepancy. Despite declining volume, terminal hog markets may price accurately off of Iowa-Southern Minnesota prices. Hog quality differentials across procurement methods are documented, and quality of negotiated hogs is shown to decline with declining volume.

Market Integration: Case Studies of Structural Change

The grain/oilseed industry is undergoing considerable structural change through mergers and new value-added businesses, which raises price-related questions. We analyze the level of price integration prior to and following a merger between two grain firms and the start-up of a producer-owned ethanol facility. This research utilizes error correction vector autoregression analysis to compute market integration structural change effects. We find evidence that market integration initially increases with the merger, but deteriorates with time following the merger. We find no significant localized change in the level of price integration for the case of a new value-added business.

Informing Measurement of Cooperative Performance

Prior work assessing cooperative performance focuses mostly on available financial accounting measures commonly used to evaluate investor owned firms. Here, we advance a more inclusive approach, which incorporates several aspects of performance consistent with the dual objectives of the cooperative form. We demonstrate that cooperative performance consists of multiple dimensions and that a survey item about overall performance adequately reflects variation in each of these dimensions of performance across cooperatives. Hence, this item may be used to compare performance across cooperatives with reasonable confidence. Though comparisons of cooperative financial statistics may be misleading when considered alone, future work that simultaneously assesses these statistics along with other dimensions of performance may provide insight into tradeoffs cooperatives make—sacrificing on one performance attribute for better performance on another. The degree of correspondence among these aspects of performance appears to vary by cooperative type. For instance, multipurpose cooperatives using cost of goods sold accounting behave more like IOFs in terms of financial performance than marketing cooperatives, which are predominately concerned with paying patron-members the highest possible prices for their products and generally use a pooling approach to accounting.