2011

August, 2011

Trade-Related Policy and Canadian-U.S. Fed Cattle Transactions Basis

By: Schulz, Lee L.; Schroeder, Ted C.; Ward, Clement E.
Price differences among fed cattle prices in Canada and the United States (referred to here as fed cattle basis) are important for Canadian cattle feeders, but changing government regulations in Canada and the United States have made basis more variable. This article uses transaction data from Canadian feedlots to quantify fed cattle price differentials in light of new policy initiatives. Using transaction prices, we find that differing slaughter regulations, labeling laws, and policies affecting access to U.S. markets for Canadian cattle affect fed cattle basis.
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August, 2011

Understanding U.S. Consumer Demand for Milk Production Attributes

By: Wolf, Christopher A.; Tonsor, Glynn T.; Olynk, Nicole J.
A choice experiment was used to examine the value of various fluid milk attributes. Respondents were surveyed regarding half or whole gallon milk purchases. A split-sample design was used to examine consumer inferences regarding food safety. Willingness to pay for verification of production process attributes varied across attributes and verifying entity. Consumers were generally willing to pay substantial premiums for milk produced without the use of rbST, on local family farms, with assured food safety enhancement, and for these claims to be verified by the U.S. Department of Agriculture.
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August, 2011

Improving the Nutrient Content of Food through Genetic Modification: Evidence from Experimental Auctions on Consumer Acceptance

By: Colson, Gregory; Huffman, Wallace E.; Rousu, Matthew C.
This paper assesses consumers’ acceptance of nutritionally enhanced vegetables using a series of auction experiments administered to a random sample of adult consumers. Evidence suggests that consumers are willing to pay significantly more for fresh produce with labels signaling enhanced levels of antioxidants and vitamin C achieved by moving genes from within the species, as opposed to across species. However, this premium is significantly affected by diverse information treatments injected into the experiments.
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August, 2011

Something in the Water? Testing for Groundwater Quality Information in the Housing Market

By: McLaughlin, Patrick A.
I test the level of information regarding possible groundwater contamination in the residential real estate market in Washington County, Minnesota. An approximately seven square-mile trichloroethylene plume has affected hundreds of households’ water supplies since at least 1988 in the region. I find that homeowners were initially well-informed by market forces, but were later somewhat misinformed by government actions regarding the potential of water contamination from the plume. A disclosure law passed in 2003 may have added new, low-cost, and imperfect information to the market that could explain the change in informational awareness.
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August, 2011

How Do Homebuyers Value Different Types of Green Space?

By: Bark, Rosalind H.; Osgood, Daniel E.; Colby, Bonnie G.; Halper, Eve B.
It is important to understand tradeoffs in preferences for natural and constructed green space in semi-arid urban areas because these lands compete for scarce water resources. We perform a hedonic study using high resolution, remotely-sensed vegetation indices and house sales records. We find that homebuyers in the study area prefer greener lots, greener neighborhoods, and greener nearby riparian corridors, and they pay premiums for proximity to green space amenities. The findings have fundamental implications for the efficient allocation of limited water supplies between different types of green space and for native vegetation conservation in semi-arid metropolitan areas.
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August, 2011

Privatization, Public R&D Policy, and Private R&D Investment in China’s Agriculture

By: Hu, Ruifa; Liang, Qin; Pray, Carl E.; Huang, Jikun; Jin, Yanhong H.
Private R&D is a major source of innovation and productivity growth in agriculture worldwide. This paper examines trends and determinants of agricultural R&D in China. Results show that while the public sector monopolized agricultural research until recently, private agricultural R&D has grown rapidly since 2000, driven largely by agribusiness privatization. Public-sector R&D investments in basic research also encouraged private R&D research, but public investments in technology development crowded out private R&D investment. China’s private R&D investment would grow more rapidly if the government shifted public resources from technology development to basic research.
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August, 2011

The Effect of Information Choice and Discussion on Consumers’ Willingness-to-Pay for Nanotechnologies in Food

By: Roosen, Jutta; Bieberstein, Andrea; Marette, Stephan; Blanchemanche, Sandrine; Vandermoere, Frederic
We evaluate the impact of different information sequences on participants’ hypothetical willingness to pay (WTP) for food produced using nanotechnology. In three treatment groups, information on the health, societal, or environmental impact linked to nanotechnology was revealed in different sequences: an imposed order, a chosen order, and a chosen order after a discussion among participants. Results show that information choice is important. While in the imposed order, the first information revealed has no effect on WTP, the information chosen first has a strong impact. Discussion has no further impact. Health information was a priority and significantly decreased WTP, while societal and environmental information did not significantly influence WTP.
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August, 2011

Strategic Incentives in Biosecurity Actions: Theoretical and Empirical Analyses

By: Kobayashi, Mimako; Melkonyan, Tigran A.
We model a game between two players taking biosecurity actions and characterize the Nash equilibria and their properties for the cases of strategic complements and substitutes. Implications of the theoretical model are investigated using data for biosecurity behavior among producers participating in a livestock exhibition. Biosecurity actions with own benefits and lasting impacts in home communities exhibit a positive relationship with behavior of the producers from geographically close areas. The number and probabilities of biosecurity actions taken by exhibitors are positively associated with the number of animals exhibited and they vary among commercial and hobby producers and across species/types of commercial production.
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April, 2011

Household Food Stamp Program Participation and Childhood Obesity

By: Robinson, Christina A.; Zheng, Xiaoyong
This study examines the dynamic relationship between a household’s Food Stamp Program (FSP) participation and the extent to which children in the household are overweight or obese. In contrast to previous studies employing static models, our results suggest that FSP participation significantly affects the deviation of current body mass index (BMI) from the ideal level in older male children who are currently underweight and for older female children who are already overweight. For older male children, the effect is desirable; for older females, however, our findings indicate that FSP participation has an adverse effect on their health and may contribute to being overweight or obese.
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April, 2011

Impacts of Rising Food Prices on Poverty and Welfare in Vietnam

By: Vu, Linh; Glewwe, Paul
In 2007 and 2008, international prices of rice and other grains sharply increased, raising fears that poor households in developing countries would become poorer. Yet, these fears often ignored that many of these poor households were food producers. This study examines the impact of rising food prices on welfare in Vietnam. Our results show that, overall, higher food prices raised the average Vietnamese household’s welfare. However, higher food prices made most households worse off. Average welfare was found to increase because the average welfare loss of households whose welfare declined (net purchasers) was smaller than the average welfare gain of those whose welfare increased (net sellers).
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April, 2011

Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting

By: Brittain, Lee; Garcia, Philip; Irwin, Scott H.
This paper examines returns from holding 30- and 90-day call and put positions, and the forecasting performance of implied volatility in the live and feeder cattle options markets. Implied volatility is an upwardly biased and inefficient predictor of realized volatility, with bias most pronounced in live cattle. While significant returns exist from several positions, strategies are strongly affected by drifts in futures prices. However, returns from live cattle puts are persistent, and evidence from 30-day straddle returns indicates the live cattle market overprices volatility. Overpricing is consistent with volatility risk, the effect of which is magnified by extreme market conditions.
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April, 2011

Electronic vs. Open Outcry: Side-by-Side Trading of KCBT Wheat Futures

By: Shah, Samarth; Brorsen, B. Wade
This study compares liquidity costs of electronic and open-outcry wheat futures contracts traded side-by-side on the Kansas City Board of Trade. Liquidity costs are considerably lower in the electronic market. Liquidity costs in the electronic market are still considerably lower after eliminating the bias created by splitting orders in the electronic market. Price volatility and transaction size are positively related to liquidity costs, while a negative relation is found between daily volume and liquidity costs. Price clustering at whole cent prices occurs in the open-outcry market which helps explain its higher liquidity costs. Daily volumes were distinctively higher during the Goldman-Sachs roll, but not enough to explain the higher liquidity costs in the open-outcry market. Trade size is larger in the open-outcry market, which suggests large traders prefer open-outcry trading.
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April, 2011

Are Agricultural Options Overpriced?

By: Urcola, Hernan A.; Irwin, Scott H.
As agricultural options markets grow, perceptions of overpricing persist among market participants. This study tests the efficiency of corn, soybean, and wheat options by computing trading returns. Several call and put option strategies yield significant profits, but returns are influenced by movements in the futures price, and straddle trading does not lead to significant returns. The combined analysis of put, call, and straddle returns indicates that significant returns can be attributed to drifts in the underlying futures, and that the corn, soybean, and wheat options markets are efficient.
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April, 2011

How Much Do Consumers Benefit from New Brand Introductions? The Case of Potato Chips

By: Arnade, Carlos Anthony; Gopinath, Munisamy; Pick, Daniel H.
This study identifies consumer welfare from new brand introductions in the potato chip market. Price and variety effects of new brand introduction are measured by estimating a demand system underlying an expenditure function. Variety effects are positive in most cities, while price effects are generally negative when consumers exhibit some variety preference. Variety effects dominate price effects in most cities; an opposite effect observed in some cities may indicate high entry barriers or joint brand- and price-based marketing strategies. Results indicate that consumers and producers gain from product innovations, but substantial regional variation exists in the distributional effects of new brand introduction.
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April, 2011

The Economics of Commonly Owned Groundwater When User Demand Is Perfectly Inelastic

By: Wang, Chenggang; Segarra, Eduardo
This paper provides a theoretical analysis of the common-pool resource dilemma in extracting nonrenewable groundwater resources when water demand is perfectly inelastic. It complements the existing theory of groundwater use, which assumes away the possibility of demand perfect inelasticity. Under perfectly inelastic water demand, the common-pool resource dilemma is by-passed if groundwater users are equally productive in water use. If they are not, a new type of inefficiency can arise due to the lack of a rationing mechanism on the basis of productivity. Our analysis suggests that groundwater management research should pay more attention to water demand elasticity and productivity heterogeneity.
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April, 2011

Carbon Sequestration in Agricultural Soils

By: Wilman, Elizabeth A.
Although it is common to alternate between till and no-till practices, past research has considered farmers’ tillage options to be limited to the dichotomous choice of whether or not to switch to a long-term no-till regime. This paper expands farmers’ options and models their choices of tillage frequency. Less frequent tilling sequesters more carbon but permits a greater accumulation of weeds, whereas more frequent tilling eliminates weeds but releases carbon (tillage emissions). The timing of tillage balances its marginal benefits and costs. Higher payments from industry or government for atmospheric greenhouse gas reductions will increase marginal cost and reduce tillage frequency. Other key parameters, such as higher rates of tillage emissions or reduced weed impact, also influence tillage frequency. However, for the discount rate and the natural decay rate of carbon, the net change depends on the magnitude of other parameters.
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April, 2011

Machinery-Sharing Contractual Issues and Impacts on Cash Flows of Agribusinesses

By: Wolfley, Jared L.; Mjelde, James W.; Klinefelter, Danny A.; Salin, Victoria
Contractual arrangements for joint machinery ownership between independent agribusinesses are explored. A two-farm economic simulation model of locations in Texas, Colorado, and Montana is developed to provide insight associated with sharing combines. Important variables include combine size (efficiency), yield losses resulting from untimely access to equipment, the penalty structure for untimely delivery, and cost-sharing and depreciation deductions claimed between producers. Combine sharing is risk-reducing in most cases. The gains to both parties are lowest when harvesting periods overlap. While the value of sharing is positive under many scenarios, benefits from sharing are small relative to total farm revenue.
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April, 2011

Tax-Deferred Retirement Savings of Farm Households: An Empirical Investigation

By: Mishra, Ashok K.; Chang, Hung-Hao
This study examines factors affecting tax-deferred retirement savings among farm households. A double-hurdle model is estimated using 2003 Agricultural Resource Management Survey (ARMS) farm-level national data. Results indicate that demographic factors, total household income, off-farm work, and risk preference play important roles in retirement savings plan participation. Retirement savings increase with household size, intensity of off-farm work by farm operator and spouse, and size of farming operation. We find that the amount of retirement savings decreases with operator’s age and increases with spouse’s age, and that cash grain and dairy farmers have lower retirement savings.
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April, 2011

Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution

By: Hennessy, David A.
The use of plausible stochastic price processes in price risk analysis has allowed advances not seen in crop yield risk analysis. This study develops a stochastic process for yield modeling and risk management. The Pólya urn process is an internally consistent dynamic representation of yield expectations over a growing season that accommodates agronomic events such as growing degree days. The limiting distribution is the commonly used beta distribution. Binomial tree analysis of the process allows us to explore hedging decisions and crop valuation. The method is empirically flexible to accommodate alternative assumptions on the growing environment, such as intra-season input decisions.
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