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Price Relationships in Processors' Input Market Areas: Testing Theories for Corn Prices Near Ethanol Plants

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  • Paul Gallagher
  • Robert Wisner
  • Heather Brubacker

Abstract

This study examines corn pricing in the vicinity of processing plants. We develop and test several price‐distance models for cargo, insurance and freight (CIF) plant pricing in the presence of varying degrees of exporter competition, and for discriminatory free‐on‐board (FOB) pricing at the farm. The price‐distance functions describing spatial prices near processing plants all depend on local transport costs. But the pricing system (CIF or FOB) and the extent of local competition define the level and spatial rate of change in prices.Estimations of an empirical price‐location function for Iowa during the spring of 2003 suggest that prices near the plants of four conventional businesses conform to the CIF pricing model. But prices near producer‐owned firms or farmer cooperatives failed to show any statistically significant effect on nearby prices. One plant had a price‐distance function that resembled FOB pricing. Cet article étudie la tarification du maïs aux environs des usines agro‐alimentaire utilisant cette céréale. Nous développons et testons plusieurs modèles de tarification CIF en présence de different niveaux de pressions compétitive à l'exportation. Nous testons aussi l'existence d'une tarification discriminatoire FOB au niveau de l'exploitation agricole. Les fonctions distance‐prix décrivant les distributions spatiales des prix aux environs des usines agro‐alimentaire dépendent toutes des coûts de transport local. Cependant le système de tarification (CIF ou FOB) et l'intensité de la compétition locale définissent le niveau et la sensibilité des prix en fonction de la distance.Les estimations des fonctions empiriques prix‐situation geographique dans l'Iowa durant le printemps 2003 suggèrent que les prix aux alentours de quatre producteurs agro‐alimentaire sont conformes à un modèle de tarification CIF. En revanche, les prix pratiques près des cooperatives ou des usines possedées par les exploitants agricole ne semblent pas affectés par des tarifications particulières. Un plan possède cependant une fonction prix‐distance dont la forme à une tarification FOB.

Suggested Citation

  • Paul Gallagher & Robert Wisner & Heather Brubacker, 2005. "Price Relationships in Processors' Input Market Areas: Testing Theories for Corn Prices Near Ethanol Plants," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(2‐3), pages 117-139, June.
    • Handle: RePEc:bla:canjag:v:53:y:2005:i:2-3:p:117-139
    DOI: 10.1111/j.1744-7976.2005.00414.x
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    References listed on IDEAS

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    1. Edwards, William M., 2003. "2004 Iowa Farm Custom Rate Survey," Staff General Research Papers Archive 10217, Iowa State University, Department of Economics.
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    Cited by:

    1. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
    2. Jinho Jung & Juan Sesmero & Ralph Siebert, 2022. "A structural estimation of spatial differentiation and market power in input procurement," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 613-644, March.
    3. Ren, Jie & Campbell, James B. & Shao, Yang, 2016. "Spatial and temporal dimensions of agricultural land use changes, 2001–2012, East-Central Iowa," Agricultural Systems, Elsevier, vol. 148(C), pages 149-158.
    4. Gallagher, Paul & Shapouri, Hosein & Brubaker, Heather, 2007. "Scale, Organization, and Profitability of Ethanol Processing," ISU General Staff Papers 200703010800001439, Iowa State University, Department of Economics.
    5. John L. Pender & Jeremy G. Weber & Jason P. Brown, 2014. "Sustainable Rural Development and Wealth Creation," Economic Development Quarterly, , vol. 28(1), pages 73-86, February.
    6. Katchova, Ani L., 2009. "The Spatial Effect of Ethanol Biorefinery Locations on Local Corn Prices," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49309, Agricultural and Applied Economics Association.
    7. Sesmero Juan, 2018. "Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-14, January.
    8. Ben H. Blomendahl & Richard K. Perrin & Bruce B. Johnson, 2011. "The Impact of Ethanol Plants on Surrounding Farmland Values: A Case Study," Land Economics, University of Wisconsin Press, vol. 87(2), pages 223-232.
    9. Zhige Wu & Alex Maynard & Alfons Weersink & Getu Hailu, 2018. "Asymmetric spot‐futures price adjustments in grain markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(12), pages 1549-1564, December.
    10. Giannoccaro, Giacomo & de Gennaro, Bernardo C. & De Meo, Emilio & Prosperi, Maurizio, 2017. "Assessing farmers' willingness to supply biomass as energy feedstock: Cereal straw in Apulia (Italy)," Energy Economics, Elsevier, vol. 61(C), pages 179-185.
    11. Stevens, Andrew, 2015. "Fueling Local Water Pollution: Ethanol Refineries, Land Use, and Nitrate Runoff," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205741, Agricultural and Applied Economics Association.
    12. Katchova, Ani L., 2011. "Are Local Corn Prices Affected by the Location of Ethanol Biorefineries?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114769, European Association of Agricultural Economists.
    13. Graubner, Marten & Balmann, Alfons & Sexton, Richard J., 2011. "Spatial Pricing and the Location of Processors in Agricultural Markets," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114601, European Association of Agricultural Economists.
    14. Stevens, Andrew W., 2021. "Ethanol Refineries and Local Land Use," 2021 Conference, August 17-31, 2021, Virtual 315304, International Association of Agricultural Economists.
    15. Gallagher, Paul W. & Baumes, Harry, 2012. "Biomass Supply From Corn Residues: Estimates and Critical Review of Procedures," Agricultural Economic Reports 308488, United States Department of Agriculture, Economic Research Service.
    16. Grashuis Jasper, 2020. "The Competitive Impact of Cooperatives on the Spot Market: A Spatial Analysis of Iowa Corn Prices," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 18(2), pages 1-11, November.
    17. Ani L. Katchova & Ana Claudia Sant’Anna, 2019. "Impact of Ethanol Plant Location on Corn Revenues for U.S. Farmers," Sustainability, MDPI, vol. 11(22), pages 1-13, November.
    18. Brent A. Gloy & Jason Henderson, 2008. "The impact of ethanol plants on cropland values in the Great Plains," Regional Research Working Paper RRWP 08-01, Federal Reserve Bank of Kansas City.
    19. Nejla Ellili & Haitham Nobanee & Ahmad Yuosef Alodat & Mehroz Nida Dilshad & Sabiha Nuzhat, 2024. "Mapping marine insurance: a bibliometric review: a taxonomical study using bibliometric visualization and systematic analysis," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(3), pages 745-762, September.
    20. Henderson, Jason R. & Gloy, Brent A., 2008. "The Impact of Ethanol Plants on Cropland Values in the Great Plains," Working Papers 51080, Cornell University, Department of Applied Economics and Management.
    21. Henderson, Jason R. & Gloy, Brent A., 2008. "The Impact of Ethanol Plants on Land Values in the Great Plains," 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48148, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    22. Jinho Jung & Juan Sesmero & Ralph Siebert, 2020. "Spatial Differentiation and Market Power in Input Procurement: Evidence from a Structural Model of the Corn Market," CESifo Working Paper Series 8088, CESifo.

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