Quality Uncertainty, Procurement Strategies, and Grain Merchandising Risk: Vomitoxin in Spring Wheat

Abstract

This study analyzes implications of a random quality factor, vomitoxin, on spatial flows and merchandising risk. Vomitoxin poses major risks for grain traders because of contract specifications, regulatory limits, sampling difficulties, and imprecise measurement. The effect of these were analyzed using crop quality and market data for the U.S. spring wheat crop, which has been severely affected by vomitoxin infestations during the 1990s. The analysis was structured as a blending problem with the objective of maximizing the net value of wheat sales. Relationships among market price spreads and contract specifications are interesting and their effects are demonstrated through simulations.