Impacts of Price Variability on Marketing Margins and Producer Viability in the Texas Wheat

The effects on marketing margins and Texas wheat producers of shifting from a period with stable prices to a period without stable prices were investigated using both econometric and simulation techniques. Empirical evidence reveals wheat export firms are risk averse and that either futures markets were unable to absorb increased price risk or futures markets absorbed increased price risk at a cost of $0.054 per bushel. Increased variability in prices and reduced farm program benefits substantially reduced the probability of Texas wheat producers receiving a reasonable return on equity and a reasonable rate of asset accumulation. The impact of risk on production de-cisions has been the subject of much re-search (e.g., Just; Lin). Winter and Whit-taker found increases in price variability resulted in decreased wheat acreage. Gal-lagher related the impacts of farm price stabilization to corn acreage responses. Additional impacts of risk other than acreage response need to be investigated. This paper seeks to quantify some of the impacts of risk on both producers and marketing firms. Changes in price risk faced by wheat producers are closely re-lated to shifts in U.S. farm policy as well as changes in world economic conditions. Two of the main purposes of past gov-ernment farm programs have been to (a) stabilize prices, and (b) increase produc-Senior authorship is shared by the four authors. B. W. Brorsen is an Assistant Professor, Purdue Univer-sity; W. R. Grant is an Agricultural Economist, Na