Measuring the Impact of Ethanol Plants on Local Grain Prices

A considerable number of farmer-owned ethanol plants have been built in the past few years, with many more planned. In part, farmers' investment in ethanol plants is an attempt to increase grain prices in their local market. We examined this issue by estimating the impact on local grain prices of twelve ethanol plants that opened from 2001 to 2002. We find that these new ethanol plants increased local grain prices, but the impact was not uniform around the plant. Markets downstream from a new plant, where prices tend to be higher, experienced a smaller price impact from the ethanol plant. On average across plants, corn prices increased by 12.5 cents per bushel at the plant site, and some positive price response was felt 68 miles away from the plant.     

Pricing to market behaviour of India's high value agri‐food exporters: an empirical analysis of major destination markets

The pricing behaviour of India's high value agricultural and food exporters in their major destination markets is examined using a pricing‐to‐market (PTM) model for noncompetitive and exchange rate related pricing behaviour. The analysis was undertaken in a context where India is showing high commodity concentration in agricultural trade. The econometric analysis employed is panel corrected standard errors (PCSE) estimation technique. The results indicated evidence of a greater degree of imperfect competition either through price discrimination across destinations or through imperfect exchange rate pass‐through. The analysis of exchange rate effects showed that the local currency price stabilization by the Indian exporters were more prominent than the amplification of exchange rates. The analysis of the asymmetric effects of exchange rates on export prices showed that in most cases the depreciation of Indian rupee had a greater impact than the appreciation. Moreover the results showed that the exchange rate pass‐through is sensitive to the kind of exchange rate index utilised. In our analysis we found that the commodity specific exchange rate better predicts the pricing to market behaviour in most cases.     

Volatility and Price Jumps in Agricultural Futures Prices—Evidence from Wheat Options

Evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices is time-dependent both as a function of calendar-time (seasonal effect) and time to maturity (maturity effect). This article extends Bates' (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in the volatility specification. Both in-sample and out-of-sample procedures to fit market option prices on wheat futures show that the suggested model outperforms previous published models. A numerical example shows the magnitude of pricing errors for option valuation.     

Regional Impacts of a U.S. Hog Slaughter Plant Closing: The Thorn Apple Valley Case

As the 1998 U.S. hog market collapse unfolded, Thorn Apple Valley ceased hog slaughter operations at its Detroit, Michigan plant. We examine the impacts on Michigan live hog prices relative to Eastern Corn Belt hog prices. Results indicate that Michigan producers' relative price advantage diminished after the closure as procurement competition changed. As the impacts of the 1998 hog market collapse were absorbed, Michigan producers' relative price advantage became consistently negative. Examination of Michigan's market hog production distribution indicates postclosure shifts away from production in areas geographically near to Thorn Apple Valley and growth in counties geographically closer to alternative packers.     

Maize acreage response under differential prices in the Republic of Benin,West Africa

Price response of maize acreage in Benin was estimated with a particular emphasis on whether the prices were producer prices in rural markets or retail prices in urban markets. A second difference between prices was examined through a price adjustment model which takes into account the distortions caused by local units on maize price when one is concerned with the pricing system in the private marketing network relating rural and urban areas. Urban market price specification appeared to be the most relevant statistically in explaining acreage decisions in Mono province. Price elasticity of acreage was 0.445 in this area while its value, around 0.10, was not significant for Benin as a whole. The use of adjusted urban prices enabled an increase of 5.6% of the elasticity in Mono province. The urban vs. rural difference was apparent, but the coefficients of the price variable were not significant in equations with rural prices. The latter were not as reliable as those of the urban market of Dantokpa (in Cotonou city) collected by the Institute of Statistics (INSAE) and the GTZ project.     

Supermarket Promotions and Food Prices: A Note

Using a sample comprising nearly 250,000 weekly prices from the largest seven UK supermarket chains, this note investigates two pricing practices that have attracted public interest: the tendency for promotions to ‘disguise’ rises in non‐sale prices and the inflation of prices prior to sales which ‘exaggerate’ the discount. Analysing price dynamics before and after periods of promotional discounting results show post‐sale prices are typically lower than pre‐sale prices, contrary to the disguise hypothesis. We do, however, find evidence of exaggeration of the discount, which may potentially explain why prices fall after discounts, although the evidence is not sufficiently widespread for this to be the sole cause. Results parallel the competition authority's view of supermarket promotions and point to the useful contribution that retail price microdata might play in keeping prices in check in countries where highly concentrated retail sectors raise similar concerns.     

Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City

Are commercial real estate prices in metropolitan New York affected by the type or nationality of the investors involved in a transaction? Previous research has highlighted differences in pricing between in-state and out-of-state investors and between different types of investors, but there are few extant studies that consider the influence of nationality on pricing at a micro-level. Foreign investors might pay more than domestic investors for commercial real estate assets because of a lack of information or experience in the market concerned. However, they might use local partners or brokers to mitigate such problems. To explore these issues, we use data provided by Real Capital Analytics on over 3000 office transactions in the New York metro area from 2001 to 2015. We use hedonic regression techniques and propensity score matching to examine whether pricing differs across investor groups after controlling for asset attributes. We find that foreign investors pay more than domestic investors at acquisition, but receive more when selling assets. Tests suggest that it is unmeasured aspects of quality that explain any apparent overpayment for offices in this location, not information issues.     

Managing economic risk in value-based marketing of fed cattle

This research investigates optimal price risk management strategies for fed cattle producers engaged in grid pricing. Stochastic simulation is used to determine optimal hedge ratios for fed cattle priced on a live weight basis or on a series of grids that vary in terms of premium/discount structure as well as base price. Results indicate that the optimal hedging strategy is greatly affected by the base price used in a particular grid. This has significant implications for pricing efficiency in the cattle market. Base prices that are linked more closely with downstream markets offer the potential to improve pricing efficiency; however, the risk associated with these prices is difficult to manage effectively with existing futures instruments.     

Retail Price Fixity as a Facilitating Mechanism

Previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior. We develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion. A non-cooperative equilibrium in fixed retail prices is supported through credible threats to revert to Nash pricing if cheating is suspected. We test the implications of this model using a two-stage, ordered probit approach in weekly supermarket pricing data. The results show that price fixity does support collusive equilibria among retailers, but other factors may also explain retail price behavior.     

Using Formula Prices in the Absence of Publicly Reported Prices: An Application for Segregated Early Weaned Pigs

A formula for deriving the price of segregated early weaned pigs using corn, soybean meal, and market hog prices was estimated by equating return on investment for the different phases of production. USDA reported prices were compared with prices derived from this and several other common formulas. Based on several accuracy measures, the estimated formula was better at predicting spot-market prices than other formulas. Producers appear to form price expectations based on futures plus expected basis rather than simply futures or current cash prices. However, the method of choosing price expectations will depend on the risk attitudes of the buyer and seller and their business relationship. Developing pricing formulas based on the framework outlined here (equal returns on investment) has merit for establishing prices in the absence of publicly reported information. However, it is important that users of the formula understand the conceptual framework of how and why it was developed.     

Decarbonisation and wholesale electricity market design

In recent decades, many power systems have introduced electricity generator competition. Market designs have varied with some countries adopting ‘energy‐only’ markets and others utilising capacity remuneration mechanisms. With increasing deployment of cost competitive renewable energy and the introduction of policy measures to reduce greenhouse gas emissions, concerns are emerging about the sustainability of these market designs. In Australia, wholesale electricity prices have increased markedly – the result of a ‘disorderly’ transition away from coal to new renewable energy. This paper critically examines the ‘energy‐only’ market in a high‐penetration renewables system, with a particular focus on the vertically and horizontally restructured National Electricity Market (NEM). We propose that the ‘energy‐only’ market can indeed work within a decarbonised energy system. But as renewables increasingly replace coal‐fired power stations, ‘unintended consequences’ will need to be addressed to facilitate an ‘orderly’ transition. It will be important that policy ensures appropriate new investment in firm capacity is forthcoming; and pricing outcomes are acceptable given political economy constraints.     

Tracing the Effects of Agricultural Commodity Prices and Food Costs

We estimate a system of product and input-demand equations for food-processing industries to trace the links among farm commodity prices, food-processing costs, and food prices. Disembodied technical change, which likely reflects increasing consumer demand for convenience and product variety, has sharply reduced agricultural materials demand relative to most other food-processing inputs. This implies weakening impacts of farm price shocks on food prices. But improving quality and falling relative prices for agricultural inputs, in combination with increasing factor substitution, has counteracted these forces to encourage greater usage of agricultural inputs in food processing, and limit these trends.     

Market and Cost Structure in the U.S. Beef Packing Industry: A Plant-Level Analysis

A resurgence of consolidation in the U.S. meat packing industry in the past few decades has stimulated academic and policy debate. Issues raised include the role of cost economies in driving these patterns, and the effects on the agricultural sector (cattle producers) from market power. Here, plant level cost and revenue data for U.S. beef packing plants are used to estimate a cost-based model incorporating cattle- and output-market pricing behavior. The robust results indicate little market power exploitation in either the cattle input or beef output markets, and that any apparent evidence is counteracted by cost efficiencies such as utilization and scope economies.     

Trade,value chains,and rent distribution with foreign exchange controls: Coffee exports in Ethiopia

Exchange rate policies can have important implications on incentives for export agriculture. However, their effects are often not well understood. We study the issue of foreign exchange controls and pricing in the value chain for Ethiopia's coffee—its most important export crop. Relying on unique pricing and cost data, we find that coffee exporters are willing to incur losses during exporting by offering high prices for coffee locally in order to access scarce foreign exchange. We further find that the consequent high wholesale prices for coffee are transmitted to producers, so that coffee farmers are unintended beneficiaries of this rent.     

ASPECTS OF HEDGING THEORY

In this paper, interpretative comments are offered on some established aspects of the economics of futures trading, including the nature of the equilibrium condition in the case of an inverse carrying charge, some inferences about traders' market positions made from estimates of returns, and the implications of the normal backwardation hypothesis in cases where hedgers are net long. The paper also includes a survey of the recent literature on the forward pricing function of futures markets, with a discussion of, inter alia, the methods used to investigate the hypothesis that futures prices are anticipations of delivery date spot prices, and the possible reasons why some markets perform this function better than others.     

Pricing Weather Derivatives

This article presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, CA follows a mean-reverting Brownian motion process with discrete jumps and autoregressive conditional heteroscedastic errors. Based on this process, we define an equilibrium pricing model for cooling degree day weather options. Comparing option prices estimated with three methods: a traditional burn-rate approach, a Black-Scholes-Merton approximation, and an equilibrium Monte Carlo simulation reveals significant differences. Equilibrium prices are preferred on theoretical grounds, so are used to demonstrate the usefulness of weather derivatives as risk management tools for California specialty crop growers.     

Asymmetric transmission between factory and wholesale prices in fiberboard market in Korea

This paper extends the estimation of price relationships in wood processing and empirical assessment of asymmetric price transmission by incorporating time lags in both explanatory and dependent variables. Each of the models developed and estimated in this article reveals the existence of asymmetric price transmission between factory and wholesale prices of fiberboard in Korea. Estimation results indicate that wholesalers earn additional profits by exploiting price fluctuations in the markets. The empirical findings in this study suggest the potential for lower wholesale prices of fiberboard with more competition in wholesale marketing.     

Urban proximity,demand for land and land shadow prices in Malawi

We assess the spatial and intertemporal variation in farmland prices using per hectare minimum willingness to accept (WTA) sales and rental (shadow) prices in Malawi. We use three rounds of nationally representative farm household panel data from the Living Standards Measurement Surveys (LSMS), collected in 2010, 2013 and 2016. The sample is split in quintiles based on distance from the nearest major city, building on the land valuation and transaction cost theory, and agrarian political economy perspectives on global and national land transactions. Generally, farmland shadow prices decrease with distance from urban areas. However, farmland shadow sales prices increased more sharply between 2010 and 2013 in rural areas (+100 % vs +30 % in urban proximity). The results indicate that the sharp increase in demand for large-scale land transfers following the sharp increase in energy and food prices also affected rural smallholders’ land valuation, even in remote rural areas of Malawi. Conversely, by 2016 land shadow sales prices were again, like in 2010, about three times as high in areas near urban centres compared to remote rural areas. Even though sales prices declined in remote rural areas from 2013 to 2016, rental prices remained high. Using farm household-level population pressure variable, we show that local population pressure is a driver of farmland shadow prices, indicating land scarcity challenges, growing demand for land, and poorly developed land markets. With increasing land scarcity, land markets are becoming more important and need to be factored in when formulating development policies that aim to improve access to land in both peri-urban and rural areas.     

Asset Pricing in Created Markets

We investigate the applicability of the present-value asset pricing model to fishing quota markets by applying instrumental variable panel data estimation techniques to 15 years of market transactions from New Zealand's individual transferable quota (ITQ) market. In addition to the influence of current fishing rents, we explore the effect of market interest rates, risk, and expected changes in future rents on quota asset prices. The results indicate that quota asset prices are positively related to declines in interest rates, lower levels of risk, expected increases in future fish prices, and expected cost reductions from rationalization under the quota system.     

Establishing Indices of Genetic Merit Using Hedonic Pricing: An Application to Dairy Bulls in Alberta

This study investigates the use of hedonic pricing to identify the value of relevant production and type traits for dairy bulls in Alberta. A hedonic pricing model is estimated that considers semen price as a function of individual production and longevily characteristics for a sample of Holstein bulls. The results suggest that the most important characteristics used by Alberta daity producers in valuing dairy bulls are milk volume, protein and fat content, general conformation, body capacity and the popularity of the bull. For a given set of such characteristics, the probability that the bull's semen may be in short supply does not significantly affect the value. This methodology may be used to establish a method of forecasting semen prices for newly proven bulls. The valuation procedure may be easily updated and adjusted as producers'breeding objectives change over time because of the changing economic environment. The results of this analysis suggest that hedonic pricing may be a better method of placing a value on production and type characteristics for dairy bulls than the Lifetime Profit Index currently being used by the Canadian dairy industry.