HEDONIC PRICES IN THE MALTING BARLEY MARKET



July 1984

price for plumpness was calculated at 65
percent plumpness since its value varies
throughout. The marginal implicit price
for plumpness increased in the first three
years of the study but has since decreased.
The second order coefficient for plump-
ness indicates that a maximum marginal
implicit price for plumpness exists. Max-
imizing the hedonic price function with
respect to plumpness indicates the quan-
tity of plumpness which yields the great-
est price. The level of plumpness which
maximizes price ranged from 67 to 94
percent plump kernels. This level varies
with respect to varieties and from year to
year with the exception of 1981/82.

The marginal implicit price for protein
was constant across varieties except in
1979/80 and has increased in each year
of the study. In the first year a one unit,
or 1 percent, higher protein resulted in a
discount of 7.2φ per bushel. In 1981/82
this discount increased to 13c per bushel.
The results indicate that the market-de-
termined value of lower protein malting
barley has increased during the study pe-
riod. The implication of this observation
is important to plant breeders in trait se-
lection and to producers who can affect
the protein level through agronomic prac-
tices.

Throughout the time period of this
study, the coefficient associated with feed
barley has decreased, and in 1981/82 was
not significantly different than zero. In the
first three years, fundamentals in the feed
grains sector, as represented by feed bar-
ley prices, had a significant effect on malt-
ing barley prices. In 1978/79 for example,
there was nearly a one-to-one relationship
between changes in feed barley prices and
malting barley prices. Since then, this re-
lationship has weakened, and in 1981/82
changes in feed barley prices did not have
a significant impact on malting barley
prices.11

ɪɪ In addition, the R2 in 1978/79 was larger than in
the recent three years. Discussions with maltsters,

Western Journal of Agricultural Economics

Summary and Conclusions

A particularly important feature of the
market for malting barley is the perceived
randomness in prices across samples. The
cross-sectional variability in malting bar-
ley prices results in uncertainty for pro-
ducers, merchandisers, processors, and
plant breeders. A hedonic price function
was specified and estimated to derive
market-determined marginal implicit
prices for protein and plumpness.

Several observations were made from
the estimated equations. First, the grade
variables did not have a significant effect
on the level of malting barley prices, giv-
en the other variables, or on the implicit
prices for plumpness and protein. An im-
portant implication which may be de-
rived from this observation is that the cur-
rent grade standards may not adequately
describe factors important in determining
the value of malting barley samples. Sec-
ond, in the first three years of the study
period there was not a significant varietal
premium which was not accounted for by
the other characteristics. In 1981/82,
however, there was a statistically signifi-
cant varietal premium for Morex. Third,
the feed grains sector has had increasingly
less effect on malting barley prices, and
in 1981/82 it was statistically insignifi-
cant.

cereal chemists, and barley buyers did not reveal
any potential omitted variables; the transition in
varieties from barker to Morex and Glenn (in 1978/
79, Larker accounted for 54% of the sample and
declined to 13 percent in 1981/82) was accounted
for by the binary variables associated with variety,
and reflected differentials in color, extraction rates,
etc. However there was one apparent structural
difference in the crop years. The proportion of bar-
ley acres planted with malting cultivars was lowest
in 1978 and has since increased (e.g., the propor-
tion of barley acres planted to malting varieties in
North Dakota increased from 83 percent to 93 per-
cent between 1978 and 1981, see Wilson, pp. 5-6).
The effect of this may have been to make the pric-
ing structure fundamentally more determinate in
years with reduced supplies of malting barley.

38




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