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Contracting for Canola in the Great Plains States

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  • Wilson, William W.
  • Bruce, Dahl

Abstract

Canola has become an important crop in the last decade in the U.S. Production of canola is risky and competes with other crops which have a range of risk reduction mechanisms. Alternative contracting strategies were evaluated by comparing returns to labor and management for growers and gross margins for processors. Alternative contracting strategies included no contract, fixed price with and without act of god provisions, and an oil premium contract. Grower returns and processor gross margins were simulated and resulting distributions were evaluated using stochastic efficiency with respect to a function. We estimated certainty equivalents and ranked contract preferences for both growers and processors by region in North Dakota. Grower and processor risk preferences varied by region. Producers and processors preferences differed for contract alternatives in the Northwest, Northeast and Eastcentral regions and were in agreement in the Northcentral region. This suggests that development of a single contract that would be widely adopted across the state would likely have to be altered by region to be acceptable to growers and processors.

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File URL: http://purl.umn.edu/95751
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Bibliographic Info

Paper provided by North Dakota State University, Department of Agribusiness and Applied Economics in its series Agribusiness & Applied Economics Report with number 95751.

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Date of creation: Jul 2010
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Handle: RePEc:ags:nddaae:95751

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Related research

Keywords: Canola; Grower; Processor; Contracting; Risk; Stochastic Efficiency (SERF).; Agricultural Finance; Crop Production/Industries;

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  1. Wilson, William W. & Dahl, Bruce L., 2008. "Procurement Strategies to Improve Quality Consistency in Wheat Shipments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(01), April.
  2. Wilson, William W. & Dahl, Bruce L., 2009. "Grain Contracting Strategies to Induce Delivery and Performance in Volatile Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(02), August.
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