WHEAT QUALITY AND WHEAT YIELDS: TRADE-OFFS AMONG PRICE, YIELD, PROFIT, AND RISK

In this report, important wheat quality attributes and their links to varietal differences are identified, and their technical and economic importance to the milling and baking industries is examined. Wheat class and grading systems used in the United States and other countries are described, and the relationships between wheat classes and wheat varieties and between physical and wholesomeness attributes and grades are identified. The per bushel prices received by farmers' for their wheat depend on the classes and grades of wheat they produce. However, wheat classes and, to some degree, grades are linked to varietal choices and those choices also affect average per acre yields and year-to-year yield variability. Therefore, this report also examines the role of price premiums and yield differences in farmers varietal choice decisions. Price premiums, particularly protein price premiums, play a crucial role in those decisions, both in terms of their average levels and their year-to-year volatility. Evidence from the Pacific Northwest on average protein price premiums and protein price premium volatility is presented, and implications for varietal choice are discussed. Finally, the links between wheat product uniformity and price premiums are evaluated and compared with the costs of obtaining product uniformity through additional wheat cleaning and varietal regulation. Price and yield considerations also have important implications for public and industry-supported research programs. Through federal and state funding for State Agricultural Experiment Stations and federal funding for the USDA Agricultural Research Service, the U.S. government provides substantial support for public research programs to develop new wheat varieties. In many states, these funds are enhanced by additional resources provided by agricultural producers through wheat production levies. How these funds should be allocated across alternative lines of research depends on expected payoffs to both producers and consumers. Private seed companies that operate their own research programs also are concerned about trade-offs between yield and quality in developing new varieties because of potential effects on producer demand for those varieties. These issues are examined in the context of the benefits and costs of public policy and private decisions with respect to quality and yield attributes in varietal R&D programs. The report's key findings are as follows. Wheat producers plant many different varieties of wheat, and their varietal choice decisions depend crucially on the yields they expect to obtain and the prices they expect to receive for the different varieties they consider. In addition, to the extent that producers are risk averse, their varietal decisions are also influenced by differences among varieties with respect to both yield and price volatility. Variations in prices among different classes of wheat largely derive from variety-related differences in intrinsic characteristics such as protein and gluten content and kernel hardness. Variations in prices among different grades of wheat within classes are mainly associated with differences in nonintrinsic characteristics such as cleanliness and the presence of contaminants such as pesticide residues. The potential availability of premiums for specific attributes such as protein and ash content has been used as an economic justification for research targeted to improve wheat quality rather than wheat yields. In general, for any given attribute, if demand remains relatively stable, then as the quantity of the attribute supplied increases, the price of that attribute in the marketplace declines. This has clearly been the case for wheat protein. One important implication of the observed inverse relationship between protein premiums and the supply of high-protein wheat is that the potential economic benefits to producers of plant-breeding programs focused on quality attributes that currently provide price premiums need to be carefully assessed. Finally, with respect to the issue of shipment uniformity, although increasing product uniformity may enhance prices received from end users, achieving increased uniformity also typically imposes costs on producers and the grain-handling system, which may more than offset any potential gains.