Agriculture Reference
In-Depth Information
associated with handling the wheat plus a profi t
margin from the cash price offered by the end
user. This calculated offer price is then adjusted
to match the elevator competitor's offer prices.
The price paid for farmer-owned wheat is the end
user price minus all transportation and handling
costs plus the profi t margin withheld by each
handler.
methods to buy, sell, handle, and transport wheat
or from changes in consumer demand. Recently,
a grain merchandising cooperative was established
by seven local grain cooperatives consisting of
23 locations in one state. The merchandising
cooperative has grown to 13 grain cooperatives
controlling 66 locations in three states. Merchan-
dising effi ciency was improved (costs reduced) by
the ability to originate larger shipments meeting
more specifi c quality characteristics. Transporta-
tion costs were reduced by shipping wheat from
the location(s) storing wheat, meeting the con-
tracted quality characteristics with the lowest
transportation costs.
Supply and demand changes may also create
changes in the marketing system. Research
shows that fl our millers may prefer hard white
over hard red wheat but not enough to pay a
premium. When hard white sprouting-resistant
cultivars are developed, allowing hard white to
compete more widely with hard red wheat in
production, fl our millers may buy the hard white
wheat before buying hard red wheat, which
would raise the price of hard white relative to
hard red wheat.
The market searches for more effi cient and
lower-cost (higher profi t) methods to originate
and deliver wheat to meet consumer demand.
Effi ciency, costs, profi t, and demand are refl ected
in prices. Adam Smith's invisible hand (price)
will continue to ensure that societal needs are
met.
QUALITY DISCOUNTS AND PREMIUMS
Most wheat prices are quoted for US No. 1 grade
wheat (grades include US no. 1, 2, 3, 4, 5, and
Sample Grade). Grades do not account for every
quality factor that affects wheat price, because the
end user may pay a premium for a factor such as
baking quality, while a producer will not typically
receive a premium for these characteristics.
Except in years where substantial high-protein
wheat is available, protein premiums may be
available. Numerous other factors affect quality
such as falling number but are not used to value
producers' wheat because they are too costly to
measure at the farm level. Wheat buyers do have
some information about the baking or functional
quality of wheat from a specifi c region of the
country in a specifi c year. The value of other
functional characteristics is at least partially
refl ected in prices. If a region of the country began
growing low or high quality wheat, it would be
refl ected in prices. The functional quality of
wheat is maintained partly by agricultural experi-
ment stations and private companies choosing not
to release wheat cultivars with inappropriate
quality characteristics for the expected market
class and region of production. Whereas the
market works well in determining the overall
price, it may not work as well in rewarding
quality.
REFERENCE
Smith, A. 1776. An inquiry into the nature and cause of
the wealth of nations. Printed for A. Strahan and T.
Cadell. Methuen and Co., Ltd., London. Available at
http://www.econlib.org/library/Smith/smWN.html
(verifi ed 23 Dec. 2008).
FUTURE PERSPECTIVES
Changes in the wheat marketing system will result
from entrepreneurs fi nding more cost-effective
