Volume 43, Issue 1, January 2018

January, 2018

Price Discovery and the Basis Effects of Failures to Converge in Soft RedWinter Wheat Futures Markets

By: Karali, Berna; McNew, Kevin; Thurman, Walter N.
Wheat futures contracts failed to converge to spot prices at delivery locations in 2008–2009. By analyzing basis at nondelivery locations surrounding this episode, we study the spatial pattern of failures to converge. We find that basis fell as distance from delivery location increased and remained tightly connected to basis at the delivery location during the nonconvergence episodes. This finding is uniform throughout the delivery zone. We conclude that nonconvergence did not affect the economic relationship between delivery and nondelivery locations’ spot prices but only affected the connection between futures prices and spot prices.
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January, 2018

Impacts of Changes in Market Fundamentals and Price Momentum on Hedging Live Cattle

By: Coffey, Brian K.; Tonsor, Glynn T.; Schroeder, Ted C.
Basis prediction errors for live cattle in the five major Mandatory Livestock Price Reporting areas are analyzed to determine how shifts in the live cattle market fundamentals and contemporaneous market conditions, including price momentum, impact ability to hedge. Results reveal that thinness of the negotiated cash market, weight of cattle marketed, and contemporaneous factors statistically impact basis prediction errors. Impacts vary across region. Volatility in cost of gain and delivery costs have greater effects on basis prediction error than do market trends.
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January, 2018

Sweet Sorghum as Feedstock in Great Plains Corn Ethanol Plants: The Role of Biofuel Policy

By: Perrin, Richard; Fulginiti, Lilyan; Bairagi, Subir; Dweikat, Ismail
This research examines whether sweet sorghum, a crop considered more drought-tolerant and suitable for semi-arid areas than corn, could result in an economically viable sweet sorghum ethanol pathway in the Great Plains. We find that that if the D5–D6 RIN price spread exceeds the $0.35/gal recently experienced, the benefits of the pathway would be equivalent to about $90/acre of sweet sorghum, or $0.38/gal of ethanol. Because of sparse cultivation potential, only four the six existing plants in the Nebraska–Colorado High Plains area might expect transportation costs to be low enough for economic feasibility.
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January, 2018

Asymmetric Price Volatility Transmission between U.S. Biofuel, Corn, and Oil Markets

By: Saghaian, Sayed; Nemati, Mehdi; Walters, Cory; Chen, Bo
Linkages between agricultural commodity and energy prices have become more complex with increased ethanol production. The concern is whether the new corn–ethanol links lead to volatilityspillover transmission between food and energy prices. We investigate asymmetric volatility spillovers between oil, corn, and ethanol prices using a BEKK-multivariate-GARCH approach. Additionally, we use daily, weekly, and monthly futures prices to examine whether the use of different-frequency data leads to inconsistent results. The results support the existence of asymmetric volatility transmission between corn and ethanol prices. Furthermore, the volatilityspillover effects are different for the different-frequency prices, and positive and negative price changes generate inconsistent results.
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January, 2018

Does Crop Insurance Influence Commercial Crop Farm Decisions to Expand? An Analysis Using Panel Data from the Census of Agriculture

By: Burns, Christopher B.; Prager, Daniel L.
The Agricultural Act of 2014 increased the role of risk-mitigating policies in U.S. agricultural policy and focused attention on how crop insurance affects farm production decisions. Using detailed farm-level data from the Census of Agriculture and supplemental county-level data, this paper seeks to understand whether purchasing crop insurance influences commercial crop farms’ decisions to expand. After instrumenting for the endogenous decision to purchase crop insurance, we find that paying higher net premiums had no statistically significant effect on crop farm expansion from 2007 to 2012. We also find that farms expanded more when they were located in counties with more acres enrolled in the Conservation Reserve Program.
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January, 2018

Application of Multiple Imputation in Dealing with Missing Data in Agricultural Surveys: The Case of BMP Adoption

By: Zhong, Hua; Hu, Wuyang; Penn, Jerrod M.
Missing-data problems are common in farmer surveys but are often ignored in the literature. Conventional methods to address missing data, such as deletion and mean replacement, assume that data are missing completely at random, which rarely holds. This study compares these approaches to the multiple imputation method, which produces different parameter estimates. The mean replacement method increases the central tendency of data, leading to more significant but smaller coefficients than the other methods. We recommend using both the deletion and multiple imputation methods to deal with missing data; results generated by the mean replacement method may not be as reliable.
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January, 2018

Optimal Beef Cow Weights in the U.S. Southern Plains

By: Bir, Courtney; DeVuyst, Eric A.; Rolf, Megan; Lalman, David
This research investigates net present value–maximizing beef cow weights for U.S. Southern Plains cow–calf operations. The relationship between cow weight and calf weaning weight was estimated and weaning weights were simulated for a 15-year time period. Annual returns were computed using cow–calf revenues and production costs for cows with mature weight between 950 and 1,800 pounds. A grid search showed that optimal cow size was 950 pounds across scenarios. Selection for growth may improve feedlot profitability but has deleterious effects on cow–calf producers. Development of smaller-framed maternal lines may improve sector profits.
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January, 2018

Plant Breeders’ Rights, Patents, and Incentives to Innovate

By: Hervouet, Adrien; Langinier, Corinne
Both patents and Plant Breeders’ Rights (PBRs) can protect plant innovations. Unlike patents, PBRs allow farmers to save part of their harvest to replant. We analyze the impact of this exemption on prices and innovation in a monopoly setting. In a PBR regime, a monopolist might let farmers self-produce, and he over- or under-invests compared to socially optimal investments. Under a PBR and patent regime, large (small) innovations are more likely to be patented (protected with PBRs), but self-production is not completely prevented, private investments are often socially optimal, and incentives to innovate are boosted. However, overall effects on welfare are ambiguous.
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