Value -added supply chains for specialty grains: An evaluation of high -oil corn
Abstract
The current grain marketing system is not designed to handle specialty grains, as specialty grains must be segregated from commodities to preserve the value-added traits. Tighter supply chain management is needed to coordinate the flow of grain from the producer to the end-user, and to keep the grain identity-preserved (IP). The objectives of this study were: (1) To determine the demand for high oil corn as an input in swine and broiler feed rations; (2) To evaluate the risks and returns to producing high oil corn on cash-grain farms; and (3) To evaluate alternative high oil corn supply chains. A stochastic programming (SP) feed-mix model, incorporating energy and protein content variability, was used to determine the quantity of commodity corn, high oil corn, and choice white grease fed in hog and broiler rations. The ration data generated by the SP model was used to estimate a constant elasticity of substitution demand system for commodity corn, high oil corn, and choice white grease. The cross-price elasticities of demand for commodity corn and high oil corn indicate a high degree of substitution. Because commodity corn and high oil corn are close substitutes, the value of high oil corn is capped by the cost of purchasing commodity corn and choice white grease. A stochastic simulation model was used to compare the per acre return over variable costs for commodity and high oil corn production. The simulation model incorporated yield risk, oil content variability, price risk, and buyer's call risk. The results indicate that high oil corn does not provide any diversification benefits. Risk averse producers would plant a corn-soybean rotation, while risk neutral producers would plant high oil corn. High oil corn production is a way to increase expected returns, but will not reduce the variability of returns. A price-endogenous model determined market equilibrium prices and demand for commodity corn and high oil corn, and indicated which supply chains handled high oil corn. The results indicated that energy variability in high oil corn limits the demand for high oil corn. The demand for high oil corn diminished as producers demanded more consistent ingredients for their feed rations. Finally, the results also indicated that grain deficit areas such as the southeast may be viable markets for creating a high-oil corn supply chain.
Degree
Ph.D.
Advisors
Boehlje, Purdue University.
Subject Area
Agricultural economics
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