Quality Forecasts: Predicting When and How Much Markets Value Higher Protein Wheat

Wheat markets stand out among other major crop commodity markets because pricing at the first point of exchange—typically a grain handling facility—is differentiated on specific quality characteristics. Moreover, the premiums and discounts that elevators offer to obtain grain of specific quality can be significant. Despite the relative importance of quality premiums and discounts to farm-level production and marketing decisions, almost no research has examined the factors underlying wheat quality pricing schedules. This study develops an informed expectation model of elevators’ quality-based pricing strategies and empirically estimates the model a lengthy dataset of weekly price observations. As such, this research provides the first step toward developing a more accurate understanding of the wheat market and an opportunity to develop price forecasts as a function of wheat quality.