Risk and marketing behavior: pricing fed cattle on a grid

A seven‐year comparative study of grid pricing versus average pricing of slaughter cattle was conducted to evaluate carcass quality market signals. The primary objectives of the study are to determine: (1) if market signals sent through the grid pricing system indicate an improvement in the grid incentive mechanism over time, (2) how changes in the grid premium and discount structure associated with carcass quality affect the market risk premium, and (3) if changes in price risk (variance) affect producer marketing decisions. An Exponential‐Autoregressive‐Conditional‐Heteroskedasticity‐in‐Mean (EARCH‐in‐Mean) modeling procedure was adopted. Empirical results suggest that the grid premium and discount structure is slowly adjusting carcass quality market signals to encourage marketing on a grid and discourage marketing by the pen. The inclusion of the conditional variance in the empirical model indicates that variance associated with the carcass quality risk premium adds financial risk associated with the adoption of grid pricing.     

Could packers manipulate spot markets by tying contracts to futures prices? And do they?

Some producers, policy makers, and researchers claim that packers influence cash prices through contracts tied to futures prices. This paper provides a theoretical and empirical study on the price effects of contract-pricing terms linked to futures price and the related formula pricing terms linked to a cash price. We show that contract-pricing terms tied to a cattle futures price can theoretically be used to reduce the cash price. Furthermore, the model demonstrates that such tied-to-a-futures-price contract-pricing clauses and the related tied-to-a-cash-price formula pricing clauses can be substitutable tools for packers to depress the cash cattle price. Nevertheless, although empirical results are consistent with the predictions of the theoretical model they show that while such manipulations may occur, their market power impact appears quite small.     

Estimated Value of Increased Pricing Accuracy for Fed Cattle

To improve vertical market coordination beef packers have introduced fed cattle grid pricing systems that offer premiums or discounts for varying carcass quality and yield grades. This study calculates the value of cattle quality information for producers considering live, dressed, and grid pricing alternatives. The value of fed cattle quality and yield grade information is at least $15/head. When fed cattle are sold on a live weight basis, high-quality cattle subsidize low-quality cattle by an average of $30/head. Price signals that could improve beef market coordination are ignored when fed cattle are marketed using traditional live or dressed weight methods.     

尼日利亚不同地区反刍动物市场定价行为研究

本文对尼日利亚牛羊市场的空间价格一体化程度进行了检验，试图运用双变量自回归时间序列模型验证寡头垄断市场上牛羊价格的非竞争性定价行为。论文分别对牛羊市场的合谋、歧视性、价格领袖和竞争性定价行为进行了经验性检验。结论表明，在牛羊价格形成中，博尔诺（Borno）和索科托（Sokoto）州的牛羊价格领先于克里斯河（CrossRiver）、依莫（Imo）、卡诺（Kano）、拉各斯（Lagos）、尼日尔（Niger）和奥约（Oyo）州这些地方市场的价格。有关证据也支持共谋定价一般与市场的集中有关的判断。     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

Expected Utility,Risk, and Marketing Behavior: Theory and Evidence from the Fed Cattle Market

The effect of carcass quality uncertainty on the structure of the slaughter cattle market is investigated. A theoretical extension of the “Theory of Factor Price Disparity” is provided. It is demonstrated that the coexistence of a risk premium wedge between marketing channel (live weight, dressed weight, and grid) pricing mechanisms, in conjunction with varying degrees of producer risk aversion or producer perception of carcass quality uncertainty, contributes to the coexistence of multiple marketing channels. It is also demonstrated that risk and risk preference provide the linkage between carcass quality uncertainty and producer marketing decisions. We demonstrate how this linkage can affect the structure of the fed cattle market and the variability in slaughter volume across marketing channels. We also confirm the linkage between value‐based production techniques that increase seller information on carcass quality and seller increased usage of grid pricing regardless of actual carcass quality. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.     

Price-Weight Relationships for Feeder Cattle

Feeder cattle prices are determined by the interaction of numerous factors. As economic conditions change over time, price differentials associated with feeder cattle weight vary. This study analyzes transactions data on 46,081 pens of feeder cattle over a 10‐year period. Results indicate that fed‐cattle futures prices and corn prices are important determinants of price‐weight relationships for feeder cattle. Time of year, recent feeding margins and sex of feeder cattle have moderate impacts on the price‐weight relationship (i.e., price slides). Coefficients of variation for fed cattle and corn prices have economically unimportant impacts on price relationships. Results of this model can be used to assess feeder cattle price relationships across weights as fed cattle and corn prices vary. Les prix des bovins d'engraissement sont fonction de I'interaction de nombreux facteurs. Au fil des changements des conditions économiques, les écarts de prix associés au poids des bovins varient. Nous étudions les données de transactions réalisées dans une période de 10 ans sur 46 081 parquets de bovins d'engraissement. II ressort de ce travail que les prix è terme des bovins finis et le prix du maïs sont d'importants déterminants des rapports prix‐poids pour ce type d'animaux. L'époque de I'année, les marges d'engraissement récentes et le type sexuel des bovins n'ont que des répercussions modérées sur le rapport prix‐poids (c.‐a‐d. I'écart de prix aux 100 Ib selon lepoids de I'animal). Les coefficients de variation relatifs aux prix des bovins finis et è ceux du maïs sont dénués de toute importance économique pour les rapports de prix. Les résultats du modèle peuvent être utilisés pour évaluer les rapports de prix des bovins d'engraissement selon une échelle de poids en fonction des variations des prix des bovins gras et de ceux du maïs.     

Finding optimal price risk management instruments: the case of the Spanish potato sector

This article offers a comprehensive analysis of the problem of choosing between alternative market risk management instruments. We model farmers' behavior to optimize the certainty equivalent, formulated by a mean–variance model, by combining instruments with and without basis risk. Results are expressed as the demands for hedging with futures, forward contracts and insurance. Theoretical results are applied to a selection of Spanish producers of fresh potatoes, a sector that is exposed to significant market risks. Amsterdam's Euronext provides potato futures prices, and the recently launched revenue insurance in Spain provides the example for price insurance. Three conclusions summarize the article's main findings. First, we show that Spanish potato revenue insurance subsidies are a factor that determines the instrument rankings and choice. Second, the efficiency of insurance subsidies is generally low. Finally, the Amsterdam potato futures market does not provide a cost‐effective means to manage price risks for Spanish fresh potato growers.     

Irrigation water pricing: differential impacts on irrigated farms

European water policy, as set out in the Water Framework Directive (WFD), requires all EU Member States to implement volumetric water pricing at rates that roughly cover the total costs of providing water services. The objective of this paper is to develop a methodology that, for the different types of farm in an irrigable area, will enable us to analyse the differential impact that a pricing policy for irrigation water would have. For this purpose, Multi-Attribute Utility Theory (MAUT) mathematical programming models were used. The methodology is implemented on a representative area in the Duero Valley in Spain. Our results show the usefulness of differential analysis in evaluating the impact of a water pricing policy. This allows significant differences in the evolution of agricultural incomes to be observed, as well as the recovery of costs by the State, demand for agricultural employment and the consumption of agrochemicals resulting from rising prices of irrigation water in various groups of farmers within a given irrigated area.     

Prices of American Pinot Noir wines: climate, craftsmanship, critics

Pinot Noir, a variety originating from Burgundy in France, is the most expensive category of table wine produced in North America. This article is aimed at analyzing its price determinants and focuses on climate, critical scores, and variables related to the winemaker. The main findings are as follows: (1) Pinot Noir prices are mainly determined by temperature and precipitation. General temperature increases are not beneficial. In fact, the optimal climate is similar to that in Burgundy. (2) The second most important variable is the winemaker. His or her skill and reputation have a significant impact on prices. (3) Expert knowledge, in the form of critical scores, has little explanatory value.     

On farmland prices and rents in Japan

Historically, the Japanese farmland market has been strongly regulated, although fundamental changes in policy were introduced in 1967 and 1980. This article examines the relationship between farmland prices and rents in Japan for 1955–2000 using the cointegration procedure of Johansen et al. (2000) , which admits structural breaks. Results show the presence of a cointegrating relationship with a significant break in 1980. There is Granger‐causality from prices to rents, which suggests that rents are determined within an institutional setting according to farmland prices. The rent–price elasticity is unity, which supports the notion of efficiency in the farmland market.     

On the Pricing of Cross Currency Futures Options for Canadian Grains and Livestock

This paper explores the problem of pricing an option on the cash commodity in Canadian dollars when the commodity is priced relative to a U.S. futures market. A general option pricing model is developed that separates out the value of a quantos risk and basis risk. The paper uses daily data for cattle, corn and soybeans in Ontario, and the model is employed to price the option on the cash commodity with basis risk and the option on a quantos, without basis risk. The relationship between the pricing model and over-the-counter options and market revenue insurance is also discussed.
L'article examine le problème que pose l'établissement du prix d'une option sur le marché au comptant canadien des denrées de base quand le prix du produit en question doit être établi en fonction d'un marchéà terme américain. Les auteurs proposent un modèle général dans lequel on sépare la valeur du risque par quantos de celle du risque de base pour établir le prix des options. Ils utilisent pour cela le cours quotidien des bovins, du maïs et du soja en Ontario. Le modèle permet de calculer le prix d'une option sur le marché au comptant des denrées de base avec le risque de base et le prix de l'option sur un quantos, sans risque de base. Les auteurs examinent aussi les liens entre le modèle et les options au comptoir ainsi que les assurance-revenu du marché.     

Yield quality and irrigation with saline water under environmental limitations: the case of processing tomatoes in California

Irrigation with saline water has a positive impact on some quality indices of processing tomatoes, but with concomitant reductions in output quantity. This article studies the impact of the trade‐off between these two factors on optimal water management under waterlogging and costly drainage‐disposal conditions. The focus is on the content of total soluble solids as a quality measure affecting prices paid by California processors to tomato growers. A function relating quality to water and salinity applications and a quality hedonic‐price function are estimated and introduced into a static, field‐level mathematical programming model. The model calculates optimal water management under environmental regulations associated with drainage disposal in California. Findings indicate that only when the quality effect is taken into account does blending fresh surface‐water with saline drain‐water become an optimal strategy. Management and policy implications on the regional scale are discussed.     

Evaluating price transmission between global agricultural markets and consumer food price indices in the European Union

This paper uses error correction models to evaluate the extent to and speed at which world agricultural commodity price movements affect consumer food prices in the European Union member states. We consider three types of world commodity price indices, each containing different commodities and weighting criteria. Results reveal a long‐run relationship between world agricultural commodity and consumer food prices in over half of the member states. Consumer prices in different member states and categories of member states respond differently to specific world price indices, suggesting that there are disparities in the structure and the efficiency of their food markets. The eurozone founders generally have lower transmission elasticities. This should be taken into account when predicting the impacts of extreme world price volatility and consumer food price rises, prompting governments to pay attention to the most vulnerable households.     

Coping with systemic risk in index‐based crop insurance

The implementation of index‐based crop insurance is often impeded by the existence of systemic risk of insured losses. We assess the effectiveness of two strategies for coping with systemic risk: regional diversification and securitization with catastrophe (CAT) bonds. The analysis is conducted in an equilibrium pricing framework which allows the optimal price of the insurance and the number of traded contracts to be determined. We also explore the role of basis risk and risk aversion of market agents. The model is applied to a hypothetical area yield insurance for rice producers in northeast China. If yields in two regions are positively correlated, we find that enlarging the insured area leads to higher insurance premiums. Unless capital market investors are very risk averse, a CAT bond written on an area yield index outperforms regional diversification in terms of certainty equivalents of both farmers and insurers.     

Cow-calf profitability and leptin genotyping

Profitability of cow-calf production is determined largely by market prices, calf weaning weights, and cow productive life. While producers individually have no effect on prices, weaning weights and productive life have genetic influences and hence can be altered by selection programs implemented by producers. We investigate the impact of a mutation in the leptin gene (exon 2; single nucleotide polymorphism [SNP] 305) on cow-calf profitability. Prior research shows that this mutation has effects on performance and traits of fed cattle and milk production in dairy cows. Using data from a teaching-research herd, we find that it is also associated with calf weaning weights and cow productive life. A bio-economic stochastic simulation demonstrates that the mutation has statistically positive impacts on profits, suggesting that producers can profitably make use of this information.     

Price shock transmission: evidence from the wheat‐bread market value chain in Ethiopia

This study assesses the degree of vertical price transmission along the wheat‐bread value chain in Ethiopia. This is pursued by applying a vector error correction model and an impulse response analysis using monthly price data for the period 2000–2015. Our analysis considers transmission of price shocks across different market levels, including from the international and domestic wheat grain markets at the upstream to the domestic wheat bread market at the downstream of the value chain. The empirical findings indicate that significant cointegration exists across prices of the different market stages. There is a transmission from international prices to domestic prices at downstream markets, in particular to flour and bread prices. Prices at upstream markets are largely influenced by the domestic wholesale market. In general, the speed of adjustment is quite slow with a half‐life of about one year for restoring the equilibrium price relationship. As price margins between the different market stages in the value chain have substantially decreased in the last 15 years, higher transmission, and thus exposure to international market shocks, can be expected in the future. The results also show that causal relationships exist between prices at different market stages—with the wholesale market identified as the key market level where prices and price expectations are formed.     

Wine market prices and investment under uncertainty: an econometric model for Bordeaux Crus Classés

This paper describes an econometric assessment of wine market prices for 21 of the Crus Classés châteaux in the Bordeaux region of France. The model developed in the analysis attempts to define the relationship between factors that influence wine quality and those that influence wine prices. Characteristics of the models are: (1) climate influences on grape composition (acid and sugar levels), (2) grape composition influences on market prices, (3) subjective quality evaluations (Parker‐points) on market prices, and (4) the effects of age of the wine on market prices. The results indicate that composition levels of Merlot‐dominated wines are more climate sensitive than those from Cabernet Sauvignon‐dominated wines. Overall, warm, dry summers result in high sugar and low acid levels at harvest which in turn lead to higher quality wines. Wine market price sensitivity to Parker‐point ratings indicates that properties with high Cabernet Sauvignon‐dominated wines are highly dependent on the external ratings while Merlot‐dominated wines have a decreased rating sensitivity. Smaller properties tend to gain over proportionally from high ratings indicating great jumps in price from year to year. Additionally, châteaux that have experienced high ratings for past vintages exhibit great sensitivity to point steps in ratings for current vintages. Aging has a positive effect on Bordeaux wine pricing. This is due to the increasing maturity as well as the increasing absolute scarcity. Absolute scarcity of product is expressed by the size of the property, with small properties producing less per vintage and therefore having less in the market. Additionally, Merlot‐dominated wines exhibit more maturing potential and profit more from aging than Cabernet Sauvignon‐dominated wines. Average per château real annual profit ranges from 1 to 10%. High levels of grape ripeness, absolute scarcity, and smaller properties that are dominated by Merlot in their blend lead to the highest profits. Forecasts for a vintage not yet on the market indicates that 1995 is better than 1994 for both Cabernet Sauvignon and Merlot‐dominated wines, but that 1996 and 1997 are not as good as 1995, especially for Merlot‐dominated wines.     

The transmission of world maize price to South African maize market: a threshold cointegration approach

This article seeks to provide an explanation for the relationship between domestic maize price in South Africa and world maize prices in order to evaluate comovement and transmission of world prices to domestic prices in sub‐Sahara African countries. This is done by comparing nested and nonnested models that capture different forms of nonlinearity in the price spread. Adopting a Bayesian approach that allows for comparison of models using Bayes factor, we found that the relationship between South African price and world price for maize indicates the presence of nonlinearity in price transmission with three regimes that is triggered by the price spread in previous period.     

Livestock pricing policy in sub-Saharan Africa: objectives,instruments and impact in five countries

Livestock pricing policies in many developing countries are often instituted without a good appreciation of the consequences of such policies for allocative efficiency, output and trade. This paper evaluates, in a comparative cross-country context, the objectives and instruments of livestock pricing policy in five sub-Saharan African countries: Ivory Coast, Mali, Nigeria, Sudan and Zimbabwe during the period 1970-86. It assesses the extent to which pricing policy objectives have been attained, and also estimates the effects of price interventions on output, consumption, trade and government revenues in order to draw out lessons for the future. The empirical results indicate that in comparison with real border prices, a certain degree of success was achieved in stabilising real domestic producer prices in the study countries. The results also show that since the early 1980s, there has been a gradual shift away from taxation of producers. However, consumers still appear to gain as much as producers in three of the study countries, with negative consequences for foreign exchange earnings and government revenues. The analysis reveals the importance of domestic inflation and exchange rates as key variables for livestock pricing policies and highlights the need to address the macroeconomic imbalances that cause exchange rate distortions and high domestic inflation at the same time that direct price distortions are being tackled.