issues in wheat marketing r. karina gallardo tree fruit research and extension center school of...
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ISSUES IN WHEAT MARKETING
R. Karina Gallardo Tree Fruit Research and Extension Center
School of Economic SciencesPresentation at the Wheat Production Growers Meeting
Wednesday March 2, 2011 NCW Fairgrounds - Waterville
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Wheat Production Over Time
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Prices Received by Class
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Market Fundamentals
• Supply
• Demand
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Supply
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Supply
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Wheat Accounting
• Ending stocks = production + imports - consumption - exports
• Gives a good idea of the overall supply that will be carried over into the next marketing year
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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US Ending Stocks
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Market Fundamentals
• Supply
• Demand
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Demand
• Food consumption Steady to increasing over past few decades
• Livestock feed High corn and soybean prices cause substitution among feed grains
• Biofuels Renewable fuels mandate: 30 billion gallons by 2022
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Wheat Marketing
• Some strategies for managing risk Cross-hedge in futures market (SRW) Forward contracting Hedge-to-arrive (open basis) Cash sales Crop insurance (yield and revenue)
Slide provided by Mykel Taylor, School of Economic Sciences, WSU
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Mexican Millers’ Demand for Quality and
Consistency in Hard Red Winter Wheat
Study done in the Spring 2007
by R. Karina Gallardo
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Background
• Increased hard wheat imports • Importance for U.S. Southern plains wheat producers
• Concerns among Mexican buyers regarding quality issues consistency
Mexico
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Background (cont.)
• Wheat quality characteristics• Physical and end-use• Increasing interest for end-use quality characteristics• Not measure or not made publicly available
• U.S. wheat marketing system• Premiums and discounts in wheat prices are based mainly on physical characteristics
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Background (cont.)
• Evolution of international wheat markets• Less participation of State Trading Enterprises• Sophistication of milling and baking processes
• More attention is given to quality issues in the buying decision making• Uncertainty in wheat quality is negatively impacting U.S. wheat exports
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Objective
• To identify the value that Mexican millers place on the level and variability in selected hard red winter wheat attributes
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Methodology
• Personal interviews with wheat milling companies in Mexico • 70% of the total Mexican wheat milling capacity
• 80% of all the wheat imported into Mexico from U.S.
CANIMOLTMexican milling industry association
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Methodology (cont.)
• Wheat attributes included in the survey• Test weight• Protein content• Falling number• Kernel diameter• Farinograph stability• P/L ratio
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Example of Survey QuestionFeatures Option A Option B
Option C
1. Test weight minimum (kg/hl) 78 78
I wouldNOT chooseany of theAlternativespresented
Test weight values within the range: 77.5-78.5 76.5-79.5
2. Wheat protein 12% (%) 11 13
Wheat protein values within the range: 10.5-11.5 12.5-13.5
3. Falling number minimum 14% (sec) 400 400
Falling number values within the range: 385-415 355-445
4. Farinograph stability minimum (min) 9 9
Farinograph stability values within the range: 8-10 6-12
5. Alveograph P/L ratio 1.1 0.85
Alveograph P/L ratio values within the range: 1.05-1.15 0.8-0.9
6. Kernel diameter (mm) 2.3 2.3
Kernel diameter values within the range: 2.0-2.6 2.25-2.35
Price ($/MT) 170 180
I would choose*
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WTP Results Mean-Variance
Willingness-to-Pay for … WTP($/MT)
Willingness-to-Pay for … WTP($/MT)
Test weight: 78 kg/hl VS 80 kg/hl
30.30 Test weight standard deviation: 0.29 VS 0.87
8.382
Protein 12% moisture base: 11% VS 13% 46.428
Protein standard deviation 12% moisture base: 0.29 VS 0.87
-1.974
Falling number 12% moisture base: 300 sec VS 400 sec 21.297
Falling number st. dev. 12% moisture base: 8.66 VS 25.98
-7.033
Farinograph stability: 9 min VS 13 min
42.481 Farinograph stability standard deviation: 0.58 VS 1.73
-10.508
P/L ratio: 0.85 VS 1.1 18.140 P/L ratio standard deviation: 0.03 VS 0.12
-4.749
Kernel diameter: 2 mm VS 2.3 mm
14.261 Kernel diameter standard deviation: 0.03 VS 0.17
-3.249
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Market Share Estimation
Percentage Imported from the
U.S.
Percentage Imported from
Canada
Forecasted Mexican wheat imports predicted by the mean-variance specification
66.978% 33.022%
Actual Mexican wheat imports in 2006 63.670% 36.330%
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Conclusions
• Mexican millers’ concerns centered on quality attribute level rather than variability
• Greatest WTP: Test weight, protein, and farinograph stability
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Implications
• Wheat farmers• Listen to what your final customers have to say
• Policy • To reduce variability direct contracting between farmers and overseas buyers
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Thank You
R. Karina Gallardo
Washington State University Tree Fruit Research and Extension Center,
School of Economic Sciences
1100 N. Western Ave. Wenatchee, WA
E-mail: [email protected]: (509) 663–8181 x 261