2015

May, 2015

Economic Organization and the Structure of Water Transactions

By: Emerick, Kyle; Lueck, Dean
This paper analyzes the structure of water transactions using data on contract duration from California. Water rights in the western United States are transferred through short-term and longterm leases as well as permanent ownership contracts. We test predictions about the type of water contracts derived from the literature on economic organization by using ordered probit models to investigate the correlates of contract duration.We confirm that long-term and permanent contracts are more likely when investments in specific assets are required for conveyance. We also find that longer-term arrangements are common when buyers with uncertain water supplies purchase from sellers with more certain rights, suggesting that urban municipalities use long-term contracts to reduce risk. We do not find robust evidence supporting the hypothesis that short-term agreements are more likely when the costs of transfer to third parties are potentially high.
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May, 2015

Agricultural Efficiency and Labor Supply to Common Property Resource Collection: Lessons from Rural Mexico

By: Manning, Dale T.; Taylor, J. Edward
Most common property resource (CPR) collection in developing countries occurs in imperfect market environments, in which endogenous prices link the economic returns in non-resource activities (i.e., agriculture) with effort supplied to CPR collection. A model of an imperfectly integrated rural household demonstrates the theoretically ambiguous connection between agricultural productivity and resource collection. Using unique panel data from rural Mexico, we find evidence that households with higher agricultural efficiency supply less labor to CPR collection. Interventions that raise agricultural productivity thus may complement resource conservation efforts.
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May, 2015

Impact of NAFTA on U.S. and Mexican Sugar Markets

By: Schmitz, Troy G.; Lewis, Karen E.
When NAFTA became fully implemented for sugar in 2008, Mexico became the leading sugar exporter into the United States, accounting for nearly 70% of U.S. imports in 2013. A partial equilibrium trade model was developed to estimate the welfare implications of NAFTA for U.S. and Mexican sugar markets from 2008 to 2013. While the net effect of NAFTA on U.S. welfare and Mexican sugar producers was positive, U.S. sugar producers suffered significant losses. The net Mexican welfare effect of NAFTA was significantly positive in 2011, negative in 2008, and slightly positive in 2009–2010 and 2012–2013.
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May, 2015

Vertical Price Transmission of Perishable Products: The Case of Fresh Fruits in the Western United States

By: Byeong-il, Ahn; Lee, Hyunok
This paper investigates the asymmetry of price transmission in the marketing chain of shipping points and terminal markets for fresh fruits in the western United States. To preserve the distinct price patterns related to product perishability, we use data constructed at a fine time scale and representing the vertical markets linked with shipments. Using a decade of weekly data, we estimate the autoregressive distributed lag price transmission model and derive the dynamic multiplier effects of price responses. Our results indicate that the price adjustments and asymmetry patterns are closely related to product characteristics, especially the intensity of product perishability.
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May, 2015

The Economics of Spatial Competition for Corn Stover

By: Sesmero, Juan P.; Balagtas, Joseph V.; Pratt, Michelle
This paper develops an empirical model of spatial competition in order to evaluate the effects of alternative corn stover market structures on stover prices, supply of cellulosic biofuels, and firm profits. We calibrate the model to market conditions in Indiana and show that spatial competition may significantly increase feedstock cost, reduce profits of biofuels plants, and increase the price of biofuel necessary to induce a given production target. On the other hand, spatial competition causes firms to rely more on the intensive margin, increasing farmers’ share of the industry’s surplus.
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May, 2015

Spatial Competition, Arbitrage, and Risk in U.S. Soybeans

By: Skadberg, Kristopher; Wilson, William W.; Larsen, Ryan; Dahl, Bruce
This paper analyzes spatial arbitrage and vertical integration of a U.S. soybean-trading firm. A risk-constrained optimization model using Monte Carlo simulation and copula joint distributions is specified. Results show that spatial-arbitrage payoffs vary regionally. Sensitivity results indicate that payoffs and risks increase as firms become more vertically integrated.
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May, 2015

Are the Federal Crop Insurance Subsidies Equitably Distributed? Evidence from a Monte Carlo Simulation Analysis

By: Ramirez, Octavio A.; Carpio, Carlos E.
This study hypothetically analyzes the distribution of the premiums paid and thus the subsidies received by farmers participating in the Risk Management Agency (RMA) multi-peril crop insurance program. The results show a wide spread in the effective subsidy levels, to where some producers might not be receiving any subsidies at all (i.e., they actually pay close to their full actuarially fair premium), while others only pay a small fraction of their actuarially fair premium. More importantly, the results show that “shrinkage” estimators such as the one used by the RMA have the unintended negative consequence of disproportionally subsidizing farmers who are less effective in managing risk. Producers whose farms exhibit higher downside yield variability receive much more generous subsidies than those with lower levels of yield variability.
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May, 2015

Noisy Information Signals and Endogenous Preferences for Labeled Attributes

By: Liaukonyte, Jura; Streletskaya, Nadia A.; Kaiser, Harry M.
Consumer preferences for labeled products are often assumed to be exogenous to the presence of labels. However, the label itself (and not the information on the label) can be interpreted as a noisy warning signal. We measure the impact of “contains” labels and additional information about the labeled ingredients, treating preferences for labeled characteristics as endogenous. We find that for organic-food shoppers, the “contains” label absent additional information serves as a noisy warning signal leading them to overestimate the riskiness of consuming the product. Providing additional information mitigates the large negative signaling effect of the label.
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May, 2015

Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector

By: Çakır, Metin; Nolan, James
We explore how market power in a complementary input sector compares to that in a downstream sector for producer and consumer welfare. We develop a model of a homogeneous product market encompassing bilateral and complementary relationships. Our main finding is that market power exercised by the supplier of a complementary input generates greater negative welfare effects than the same level of market power exercised by downstream firms. We provide a discussion of the implications of the results for policy in the context of current problems in the Canadian grain-handling and transportation system.
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May, 2015

Factors Affecting Preconditioned Calf Price Premiums: Does Potential Buyer Competition and Seller Reputation Matter?

By: Schulz, Lee L.; Dhuyvetter, Kevin C.; Doran, Beth E.
Feeder-calf prices are determined by the interaction of many factors. This study uses transaction data from Iowa preconditioned and regular feeder-calf auction sales to quantify the impact of a wide variety of factors, several of which have not been used in previous studies on feeder-calf prices. Notably, market premiums for preconditioned sales versus regular sales, feedlot capacity utilization, and seller reputation are found to be significant factors affecting feeder-calf prices. Estimated coefficients are then used to predict prices to demonstrate how this information can be used in making management and marketing decisions.
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May, 2015

Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market

By: Kim, Jong-Jin; Zheng, Xiaoyong
We propose a model that elucidates the two channels through which alternative marketing arrangements affect spot price in livestock markets. The direct effect works through their effect on demand and supply. The indirect effect works through spot price volatility, which has been ignored in the literature. We then estimate a dynamic model with data from the U.S. hog market to test our model implications and quantify the two effects. We find increases in the use of AMAs increase spot price volatility and decrease spot price level. The short-run effects are small but the long-run effects are nontrivial.
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May, 2015

Direct Marketing and the Structure of Farm Sales: An Unconditional Quantile Regression Approach

By: Park, Timothy A.
This paper examines the impact of participation in direct marketing on the entire distribution of farm sales using the unconditional quantile regression (UQR) estimator. Our analysis yields unbiased estimates of the unconditional impact of direct marketing on farm sales and reveals the heterogeneous effects that occur across the distribution of farm sales. The impacts of direct marketing efforts are uniformly negative across the UQR results, but declines in sales tend to grow smaller as sales increase. Producers planning to sell more in local outlets should expect sales to decline. Marketing experts and extension professionals can use this information to guide farmers who are considering initiating or expanding direct marketing activities.
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May, 2015

The Impact of Extreme Weather on Cattle Feeding Profits

By: Belasco, Eric J.; Cheng, Yuanshan; Schroeder, Ted C.
While large feedlots commonly hedge corn and fed cattle prices, weather remains the largest uncontrollable component of production risk. This research examines the economic losses to cattle feeding associated with extreme weather. Profit losses are assessed using nonlinear regressions that relate weather outcomes, based on the Comprehensive Climate Index ( Mader, Johnson, and Gaughan , 2010 ), and their impact on production variables. Actuarially fair insurance premium rates are derived for an insurance product designed to mitigate the potential cost of extreme weather. Finally, we discuss additional issues associated with using weather-index insurance products and insuring feedlot cattle against adverse weather.
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May, 2015

Accounting for Weather Probabilities in Crop Insurance Rating

By: Rejesus, Roderick M.; Coble, Keith H.; Miller, Mary France; Boyles, Ryan; Goodwin, Barry K; Knight, Thomas O.
This article develops a procedure for weighting historical loss cost experience based on longer time-series weather information. Using a fractional logit model and out-of-sample competitions, weather variables are selected to construct an index that allows proper assessment of the relative probability of weather events that drive production losses and to construct proper “weather weights” that are used in averaging historical loss cost data. A variable-width binning approach with equal probabilities is determined as the best approach for classifying each year in the shorter historical loss cost data used for rating. When the weather-weighting approach described above is applied, we find that the weather-weighted average loss costs at the national level are different from the average loss costs without weather weighting for all crops examined.
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May, 2015

Bundled Adoption of Precision Agriculture Technologies by Cotton Producers

By: Lambert, Dayton M.; Paudel, Krishna P.; Larson, James A.
This research analyzes the adoption patterns among cotton farmers for remote sensing, yield monitors, soil testing, soil electrical conductivity, and other precision agriculture technologies using a Multiple Indicator Multiple Causation regression model. Adoption patterns are analyzed using principle component analysis to determine natural technology groupings. Identified bundles are regressed on farm structure and operator characteristics. The propensity to adopt technology bundles was greater for producers managing relatively larger operations who used a variety of information sources to learn about precision farming, irrigated cotton, practiced crop rotation, and participated in working land conservation programs.
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