Volume 28, Issue 1, April 2003

April, 2003

Forecasting Agricultural Commodity Prices with Asymmetric-Error GARCH Models

By: Ramirez, Octavio A.; Fadiga, Mohamadou L.
The performance of a proposed asymmetric-error GARCH model is evaluated in comparison to the normal-error- and Student-t-GARCH models through three applications involving forecasts of U.S. soybean, sorghum, and wheat prices. The applications illustrate the relative advantages of the proposed model specification when the error term is asymmetrically distributed, and provide improved probabilistic forecasts for the prices of these commodities.
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April, 2003

Welfare Reform in Agricultural California

By: Green, Richard D.; Martin, Philip L.; Taylor, J. Edward
When welfare reforms were enacted in 1996, a higher than average percentage of residents in the agricultural heartland of California, the San Joaquin Valley, received cash assistance. Average annual unemployment rates during the 1990s ranged from 12% to 20%, and 15% to 20% of residents in major farming counties received cash benefits. This analysis develops and estimates a two-equation cross-sectionally correlated and timewise autoregressive model to test the hypothesis that in agricultural areas, seasonal work, low earnings, and high unemployment, as well as few entry-level jobs that offer wages and benefits equivalent to welfare benefits, promote welfare use and limit the potential of local labor markets to absorb ex-welfare recipients.
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April, 2003

Price Volatility Spillover in Agricultural Markets: An Examination of U.S. Catfish Markets

By: Buguk, Cumhur; Hudson, Darren; Hanson, Terrill R.
Price volatility spillovers in the U.S. catfish supply chain are analyzed based on monthly price data from 1980 through 2000 for catfish feed, its ingredients, and farm- and wholesale-level catfish. The exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model was used to test univariate volatility spillovers for prices in the supply chain. Strong price volatility spillover from feeding material (corn, soybeans, menhaden) to catfish feed and farm- and wholesale-level catfish prices was detected.
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April, 2003

Efficiency Costs of Subsidy Rules for Crop Insurance

By: Wang, H. Holly; Hanson, Steven D.; Black, J. Roy
Participation in federal crop insurance programs has been encouraged through premium subsidies. The current subsidy depends on contract features as well as coverage levels. This type of subsidy rule causes farmers to choose contract designs and coverages that are not efficient for managing risk, in order to capture subsidy. Farmers are found to be as well off with a flat subsidy that is up to 25% less than the value of the current regressive proportional subsidy.
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April, 2003

Cooperative Mergers and Acquisitions: The Role of Capital Constraints

By: Richards, Timothy J.; Manfredo, Mark R.
Several explanations for merger activity exist for publicly traded firms, but none consider the unique aspects of cooperatives. This study develops a test for the hypothesis that cooperative consolidation occurs primarily in response to capital constraints associated with a lack of access to external equity capital. An empirical model estimates the shadow value of long-term investment capital within a multinomial logit model of transaction choice in a panel data set of the 100 largest U.S. cooperatives. The results substantially confirm the capital-constraint hypothesis. Thus, the primary implication is that internal growth may be a more viable alternative to consolidation if new forms of cooperative financing are developed.
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April, 2003

Commercial Disappearance and Composite Demand for Food with an Application to U.S. Meats

By: Reed, Albert J.; Levedahl, J. William; Clark, J. Stephen
When elementary prices move strictly proportionately, aggregation over a group of diverse products is valid, and group demand responses can be decomposed into quality and quantity responses. This study shows that when relative elementary prices and group prices are stochastically independent, a similar decomposition is valid. Empirical results suggest consumers respond to changes in prices and income mostly by altering the quality of meat products. These findings imply that using commercial disappearance as a proxy for food demand can be misleading for policy analysis. Key words: commodity aggregation, Composite Commodity Theorem, composite demand, Generalized Composite Commodity Theorem, quantity-quality decomposition
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April, 2003

The Semivariance-Minimizing Hedge Ratio

By: Turvey, Calum G.; Nayak, Govindaray
This study presents a new approach to the optimal hedging decision. In some empirical studies, the standard hedge using the mean-variance hedge ratio provides results which are inconsistent with downside risk management. The new approach taken here relates the optimal hedge ratio to semivariance rather than variance. An algorithm to solve for the minimum semivariance hedge is presented, and applied to hedging Kansas City wheat and Texas steers.
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April, 2003

The Value of Bt Corn in Southwest Kansas: A Monte Carlo Simulation Approach

By: Hyde, Jeffrey; Martin, Marshall A.; Preckel, Paul V.; Buschman, Lawrent L.; Edwards, C. Richard; Sloderbeck, Phillip E.; Higgins, Randall A.
While most Corn Belt farmers consider planting Bt corn to control European corn borer, southwestern Kansas farmers must also take into account an array of other insect pests, including corn rootworm, spider mites, and southwestern corn borer. This research uses a decision analysis framework to estimate the expected economic value of Bt corn in southwest Kansas. Mean per acre Bt values ranged from $12.49 to $34.60, well above the technology fee assumed to be $14 per unit, or $5.25 per acre at a seeding rate of 30,000 seeds per acre. The minimum value over all scenarios was $8.69 per acre. Using Monte Carlo simulation, it was shown that European and southwestern corn borer infestation probabilities, expected corn price, and expected pest-free yields are important determinants of the value of Bt corn.
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April, 2003

Segregation of Grain Markets: Consequences for Price Behavior

By: McNew, Kevin; Smith, Vincent H.
The introduction of genetically modified grain and oilseed products at the farm level and resistance for these products by consumer groups have led to segmentation in grain markets. This study explores the implications for market price behavior for a segregated soybean market for genetically modified (GM) and non-GM varieties. A stochastic dynamic simulation model of production and storage is solved, and Monte Carlo simulation procedures are used to examine price behavior between GM and non-GM soybeans. The results suggest important differences in price behavior between GM and non-GM soybeans. The results obtained in the model simulations are compared with evidence from the Tokyo Grain Exchange, where non-GM and GM soybean futures contracts have traded simultaneously since May 2000. The evidence from the Tokyo Grain Exchange contracts is largely consistent with the results of the simulation model. Price correlations between the Tokyo Grain Exchange non-GM and GM soybean contracts tended to be similar in magnitude to those found in the simulations.
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April, 2003

State-Contingent Demand for Herbicide-Tolerance Seed Trait

By: Hennessy, David A.; Saak, Alexander E.
Suppose a farmer had to apply a herbicide pre-emergence or not at all. The advent of a herbicide-tolerance trait innovation then provides the option to wait for more information before making a state-contingent post-emergence application. This option to wait can increase or decrease average herbicide use. For heterogeneous acre types, trait royalties increase with the level of uncertainty about the extent of weed damage. Royalties are largest when acre infestation susceptibility types are bunched around the type indifferent to applying the herbicide in the absence of the trait. The trait complements (substitutes for) information technologies that facilitate informed post-emergence (pre-emergence) decisions.
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April, 2003

Selection of Peach Varieties and the Role of Quality Attributes

By: Park, Timothy A.; Florkowski, Wojciech J.
Timely adoption of new varieties is critical to profitable peach production, and peach quality is a primary factor driving adoption. An adoption model for peach varieties is estimated, incorporating grower evaluations of peach quality. The model identifies the impact of farm characteristics such as the farmer's quality preferences, on-farm agronomic and orchard conditions, as well as geographic effects in Georgia peach-growing regions. The relative impact of the key external and internal peach quality attributes on adoption is assessed. Decisions on new varieties are influenced by the age distribution of the orchard, information which can be used in targeting new varieties to growers.
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