Abstract:
The main objective of this research was to compare the demand and
the price of hard red winter (HRW) wheat and white wheat (WW) to
determine the similarities and the differences between these two wheat
classes.
Using Granger's causality test with average monthly cash prices
and daily Free on Board (FOB) prices, it was determined that HRW
adjustment instantaneously causes WW adjustment, and the WW
instantaneously causes HRW adjustment. Over one-week periods, HRW
causes WW adjustment, but not the reverse.
The factors affecting domestic demand, foreign demand, and
carry-over, for HRW and WW were determined. The coefficients of the
three equations were estimated by Three-Stage Least Squares (3SLS).
It was shown that 1) the U.S. per capita demand for HRW can be
explained by the HRW farm price and the lagged demand per capita, 2)
the U.S. demand per capita for WW can be explained by the lagged
demand per capita, 3) the foreign demand for HRW can be explained by
the lagged foreign demand and by the trade dependency ratio, 4) the
foreign demand for WW can be explained by the Japan rice price and
by per capita GNP of importing countries, 5) the HRW carry-over
equation (dependent variable: the ratio between the HRW farm price
and the U.S. loan rate) can be explained by the ending stock and the
lagged ratio, and 6) the WW carry-over equation has the same
specification as for HRW. The significant variable is the lagged
ratio between the WW farm price and the U.S. loan rate.
These two systems of equations for HRW and WW were compared
using the Wald test. The Wald test was applied to the combined
system of equations, to each independent set of equations, and to
selected common coefficients. The results show a difference between
the coefficients of HRW and WW system of equations, due to the
foreign demand equations and especially from the coefficients of GNP
of the country importing HRW and WW and the coefficients of the
lagged foreign demand.
