Warren R. Grant

Marketing Margins and Price Uncertainty: The Case of the U.S. Wheat Market

This paper seeks to determine the effect of changes in output price risk on marketing margins. A theoretical model of price determination in a marketing channel with risk-averse firms is developed. This model shows that if marketing firms ate competitive and decreasingly absolute risk averse, then an increase in output price risk should result in higher expected marketing margins. Empirical evidence from the wheat marketing channel supports the theoretical model: increased price variability significantly increases wheat marketing margins for both the farm-mill margin and the mill-retail margin. These results suggest a potential benefit from price stabilization programs.

A Hedonic Price Model for Rough Rice Bid/Acceptance Markets

Several quality factors are important in valuing rough rice. This paper first evaluates the ability of federal grades to explain these factors. Second, the discounts associated with various quality factors are estimated. Finally, the factors affecting acceptance of a bid are investigated. The results indicate grades are useful but inadequate in explaining observed quality differentials. The major quality factor in determining price was head yield. Stinkbug damage was the most important quality factor of those that producers could control. The probability of acceptance increased with higher than expected bids, smaller lot sizes, more bidders, and as the marketing season progressed.

A Market Equilibrium Analysis of the Impact of Risk on the U.S. Rice Industry

An economic model of supply/demand for U.S. rice suggests that increases in risk result in decreased acreage and increased marketing margins. In a market equilibrium context, the empirical results also suggest rice production and rice prices are more responsive to changes in risk faced by marketing firms than changes in risk faced by producing firms.

A Dynamic Analysis of Prices in the U.S. Rice Marketing Channel

Granger causality tests and dynamic multipliers are used to explore the dynamic relationship among prices in the U.S. rice marketing channel. The dynamic multipliers provide information about the speed and magnitude of dynamic price adjustments that is not provided by the Granger causality tests. This information is shown to be useful in explaining the underlying economic relationship among the time series of prices.

Soybean crushing margins and risk

The effect of output price risk on soybean crushing margins is determined. The results show crushing margins increase as risk increases indicating soybean processors are risk averse. Thus, soybean processors with better risk management strategies may have a competitive advantage. Policy implications are that the increased margin from risk should be incorporated in evaluating benefits of price stabilization programs.