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Soybean quality differentials, blending, testing and spatial arbitrage

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  • William, Wilson
  • Dahl, Bruce
  • Hertsgaard, David

Abstract

One of the fastest-growing markets in agriculture is soybean exports to China and elsewhere. Features of competition for this market are related to quality, logistics cost and performance, all of which are manifested in port-basis values and ocean shipping-cost differentials. It is commonly recognized that soybean quality in the United States' Upper Midwest is deficient relative to soybeans shipped via the Gulf. These regions also compete directly or indirectly with soybeans from the central and southern United States. This study's purpose is to analyze trading opportunities for soybeans which are marketed from the Upper Midwest. A stochastic optimization model was specified for the soybean supply chain in order to capture these phenomena. The model is of a trader and assess impacts of quality variability from different origins and quality requirements. Choices for the trader include testing throughout the system, blending and spatial origination decisions. Some important results include that quality variation is an important problem which affects purchasing and procurement decisions for U.S. soybeans. Shippers can mitigate these risks with testing and targeted logistical strategies, both of which lower the buyer's risk.

Suggested Citation

  • William, Wilson & Dahl, Bruce & Hertsgaard, David, 2020. "Soybean quality differentials, blending, testing and spatial arbitrage," Journal of Commodity Markets, Elsevier, vol. 18(C).
    • Handle: RePEc:eee:jocoma:v:18:y:2020:i:c:s2405851319300601
    DOI: 10.1016/j.jcomm.2019.100095
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    References listed on IDEAS

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