Presentations, Working Papers, and Gray Literature: Agricultural Economics

Opportunities for Nebraska in Future Carbon Markets: Final Technical Report for NCESR Project 3-#303

Richard K. Perrin et al. — Tue, 11 Jan 2011 14:26:59 PST

This study was funded to explore potential opportunities for Nebraska in future carbon markets, most explicitly those opportunities related to the possibility of replacing fossil fuels with biomass at Nebraska corn ethanol plants.

The most direct and significant finding is that biomass-fired CHP (combined heat and power) technology is not economically viable for Nebraska corn ethanol plants under current conditions. We estimate in the study that corn stover price would have to be at least $50 per ton of dry matter for the requisite amounts to be delivered to any of the three ethanol plant locations considered (Adams, Norfolk and Wood River). At this price, adoption of CHP would reduce ethanol plant fuel expenditures from about $0.16 per gallon for fossil fuels to about $0.10 per gallon for corn stover, and in addition could add nearly $0.04 per gallon in receipts from sale of surplus electricity to the grid, for a net operating cost reduction of about $0.095 per gallon. However, retrofitting a plant for CHP would require large capital investments with an amortized cost of about $0.24 per gallon, substantially greater than the fuel savings.

Potential carbon markets could add only marginal improvements to the prospects for CHP feasibility, adding revenues of about $0.02 per gallon from carbon offsets and perhaps another $0.014 from renewable energy credits. This would bring net operating cost savings to about $0.13 per gallon, still far from paying for the $0.24 per gallon capital cost.

CHP technology could become feasible if the capital cost for retrofitting a plant were to fall by 50%, or if natural gas and electricity prices were to rise considerably - at least 60% relative to 2009 prices. Another consideration is the impact of BCAP, USDA's Biomass Crop Assistance Program. This program offers producers a matching payment for whatever price they receive for biomass from an authorized biomass-using facility. The practical effect of this would be to cut in half the price that biomass facilities must pay for delivered biomass, except that the matching payments are limited to two years. Ethanol plants would not be able to invest the capital for retrofitting to biomass based on lower prices for biomass that are limited to only two years, so BCAP will have little impact on CHP feasibility.

It is possible that CHP-based ethanol could have a higher market value because of a lower carbon footprint, in California or states that adopt similar policies. We have not made an estimate of this value, because current California regulations do not include soil carbon losses within the boundary of the LCA (life cycle analysis) for the carbon content of biofuels. Our estimates are that conversion to stover-fired CHP would reduce the GHG intensity of the ethanol by 13.3 gCO2e MJ-1. However, the reduction of Midwest corn ethanol's footprint by that amount would provide a fuel with a GHG reduction of only 11% relative to gasoline, which would result in a minimal carbon premium in California even if their regulations were changed to recognize it.

An important contribution of this project has been the estimation of supply curves for various amounts of corn stover or switchgrass to be delivered at one of the three delivery points in the study. Biomass in large quantities may be used for other purposes, such as for co-firing with coal in electrical generating plants, or as a feedstock for cellulosic ethanol. The relationship between delivered price and quantity is important information in the evaluation of any such project. One significant finding of the study is that corn stover price would need to be at least $50 per ton of dry matter to have small amounts of less than 100,000 tons per year delivered, or $55-$62 per ton to have a million tons per year delivered, depending on the location in Nebraska. A second significant finding is the lack of competitiveness of switchgrass as a source of biomass in the area of the study. Given current switchgrass technology, prices would have to be $70-$75 per ton of dry matter for delivery of 100,000 to one million tons per year.

The project conducted several background studies to be able to address the above issues, results of which are summarized in the report. We reviewed the history and status of climate change initiatives in the U.S. and internationally, from which we were able to identify carbon credits as possible benefits in the future, and renewable energy credits and BCAP benefits available currently and the near future. We also reviewed and summarized the literature on ethanol's carbon footprint attributable to Indirect Land Use Change (ILUC), and though we did not attempt any original research on this issue, a thesis study was in progress at the close of the project examining the potential effects of corn stover revenues on the expansion of cropland into pasture and hay lands in Nebraska. Finally, we examined the relationships between prices of energy sources in Nebraska (natural gas, electricity, and diesel) to aid in understanding how changing energy prices would affect financial feasibility of retrofitting to CHP.

Effect of Risk Perception on Willingness to Pay for Improved Water Quality

Renu Sukharomana et al. — Mon, 03 Nov 2008 12:12:25 PST

Groundwater quality improvement benefits for Nebraska were estimated using both contingent valuation (CV) and averting expenditures (AE) methods. Willingness to pay (WTP) and averting expenditures were measured based on a mail survey of 4,000 randomly selected Nebraska households that was conducted in mid October 1997. A double-bounded referendum format was used to elicit WTP for water quality improvements. The questionnaire also solicited information on the socioeconomic factors hypothesized to influence WTP and averting expenditures, including: risk perceptions, age, level of education, income, length of stay in Nebraska, source of water supply, opinions regarding who should pay for water quality programs, and presence of children as well as pregnant woman in the home. The response rate for the Dillman mail survey procedure was 35 percent, resulting in 1416 useable responses.

Investing in Hope: AIDS, Life Expectancy, and Human Capital Accumulation

Rui Huang et al. — Mon, 03 Nov 2008 12:10:31 PST

A three period overlapping generations model is developed to investigate the impact of shorter life expectancy due to disease, on human capital investment decisions and income growth. This research is particularly relevant to Sub-Saharan Africa given the dramatic reduction in life expectancy due to HIV/AIDS and the potential lasting effects on growth. Our results indicate that as life expectancy shortens so does schooling inducing a lower growth rate of income. These relationships are even more pronounced for the African continent than for the rest of the world.

Understanding the Economic Factors Influencing Farm Policy Preferences

Keith H. Coble et al. — Mon, 03 Nov 2008 12:05:39 PST

Freedom to Farm legislation enacted in 1996 was widely perceived as a dramatic step toward a more market oriented farm policy which would create a producer decision environment more conducive to competitive adjustments. Enacted in a time of high market prices and large exports of agricultural products, the transition payments were initially larger than deficiency payments would have provided. Generally, this legislation received strong support from Midwestern and Central Plains states. However, final passage was secured through concessions to legislators from other regions.

Water Optimizer: A Tool for Decision Support and Policy Analysis

Derrel L. Martin et al. — Mon, 27 Oct 2008 12:12:33 PDT

Water Optimizer is a tool for analyzing alternative water management strategies when the available water supply is limited. It can be used by producers to determine the profit maximizing crops to produce and the optimum amount of water to apply to each crop, given a particular water supply. It can also be used to evaluate the economic consequences of public policies which expand or reduce the amount of irrigation.

The Water Optimizer model can compute the profit maximizing strategy for producers located in any county in Nebraska where there is significant irrigation. This can be done for three different soil types (fine, medium and coarse textured), for two types of irrigation systems (gravity and pivot) and for any water cost. The model does this by simultaneously considering seven crops (corn, soybeans, wheat, grain sorghum, alfalfa, edible beans and sunflowers) at all irrigation levels ranging from dryland to fully- watered.

Water Optimizer has been widely used to evaluate management strategies in the Republican and Central Platte basins. In most cases we find that the optimum strategy when water becomes limiting is to continue to irrigate the same acreage and the same crops at less than full irrigation (called deficit irrigation), as long as the water supply for the field is at least 80 percent of the full requirement. When the water supply is less than 80 percent of the full requirement it usually becomes advantageous to plant some acres to a lower water using crop, often soybeans, and/or to reduce the number of acres irrigated. The profit maximizing crop when water is not limited is usually continuous corn, although an irrigated corn and soybeans rotation is sometimes competitive.

Economic and State Budget Cost of Reducing the Consumptive Use of Irrigation Water in the Platte and Republican Basins

Ray Supalla et al. — Mon, 27 Oct 2008 12:07:30 PDT

The potential costs to irrigators, the state economy and the state budget were estimated for different methods of reducing consumptive use (CU) of irrigation water in the Platte and Republican Basins. The policy methods considered included: leased retirement of irrigated land using a willing buyer-willing seller approach; required land retirement with lease payments equal to actual producer losses; retirement of irrigated land by purchasing water rights using a willing buyer-willing seller approach; forced retirement of irrigated land with the purchase price equal to actual market value; allocation with 100 percent producer compensation; and allocation with 50 percent producer compensation. Both long and short-term programs were considered with the reduced consumptive use occurring at different locations within each basin. The analysis assumes that CU must be reduced by 75,000 acre-feet in the Platte Basin west of Elm Creek, and by 100,000 acre-feet in the Republican Basin.

Defining the Financial Capacity of Rural Communities to Meet Sewer and Water Needs

Ray Supalla et al. — Mon, 27 Oct 2008 12:07:29 PDT

The relative ability of rural communities to pay for sewer and water systems was analyzed. It was found that median household income, as currently used for many grant programs, is a poor measure of relative need. An alternative approach using measures of wealth and income distribution was developed.

Biofuels: An Emerging Water Resources Hazard

Ray Supalla — Mon, 27 Oct 2008 11:52:39 PDT

Contents:

BiofuelPlants Operating or Under Construction, Spring 2007

Political Forces

Potential Water Resource Implications

Direct Water Requirements

Indirect Effects of Ethanol on Water Quantity

Food & Industrial Use, including ethanol

Ethanol Impact on Grain Prices

If current grain prices are sustained?

Water Demand from 2007 Increase in Corn Acres: Nebraska Case

If current grain prices are sustained?

Water Quality Impacts

Increased returns to irrigation presents a major threat to water policy objectives

Water Hazards Presented by Ethanol

The Cost of Reducing Irrigation

Ray Supalla — Mon, 27 Oct 2008 11:47:00 PDT

For several decades Nebraska has proudly and appropriately regarded irrigation development as an important source of economic growth. However, in some parts of the state we now have too much of a good thing! To meet our Compact obligations to Kansas and Colorado in the Republican Basin and to comply with the proposed Cooperative Agreement for the Platte Basin we must find a way to consume less irrigation water. The cost of reducing irrigation and the equity implications will depend on what methods the state uses to achieve this objective.

We recently estimated the costs to irrigators and to the state budget of using different policies to reduce consumptive use (CU) of irrigation water in the Platte and Republican Basins (Supalla, 2006). The policy methods considered were: leased retirement of irrigated land using a willing buyer-willing seller approach; required land retirement with lease payments equal to actual producer losses; retirement of irrigated land by purchasing water rights using a willing buyer-willing seller approach; forced permanent retirement of irrigated land with compensation equal to actual market value; allocation with 100 percent producer compensation; and allocation with 50 percent producer compensation. Both long and short-term programs were considered with the reduced consumptive use occurring at different locations within each basin.

The relationship of U.S. and Canadian Cull Cow Prices to lean beef prices: A DAG Analysis

Dillon Feuz et al. — Mon, 27 Oct 2008 11:43:26 PDT

What is the price relationship between a cull cow in San Angelo, Texas, Sioux Falls, South Dakota and other major U.S. cull cow markets and those in Ontario or Alberta Canada? How are these prices impacted by the price for lean beef trimmings or the price of imported lean beef from Australia or New Zealand? What impact did the discovery of bovine spongiform encephalopathy (BSE) in North America in 2003 have on these price relationships? Answers to these and other questions are the purpose of this paper.

Numerous market and price analysis studies exist on the fed cattle and feeder cattle markets in the U.S. However, there have been only a few recent studies on the U.S. cull cow market. Yager, Greer and Burt, 1980, and Tronstad and Gum, 1994, looked at optimal culling and marketing decisions, but neither of these two studies compared markets over time. While only limited research has been done on this market, it is an important part of the total U.S. beef market. Ground beef represents about 44% of all retail beef purchased and 59% of all fresh beef consumed in U.S. households. The cull cow market is a major supplier of lean beef and trimmings for the grinding industry. Beef from cull cows is also used for the low-end steak houses, for many of the thinly sliced deli beef products and for some of the other pre-cooked and further processed beef products for sale in retail grocer stores.

Economics of Management Options for Lake McConaughy

Ray Supalla et al. — Mon, 27 Oct 2008 11:36:50 PDT

The amount of water stored in Lake McConaughy reached a historical low in the Fall of 2004 and again in 2006. In 2005 and 2006 CNPPID irrigators received less than a full supply of Lake McConaughy water for the first time since the system came on line over 60 years ago. Electric power interests, recreation interests and the regional economy have also been adversely affected by low water levels. What, if anything should the State of Nebraska do to minimize the adverse impacts from this situation and/or prevent it from developing again in the future?

The most critical policy issue concerns the potential effects of diminished water supplies on irrigation, hydropower, recreation resources and the regional economy. The policy choices consist of leaving more water in Lake McConaughy during drought periods, reducing upstream groundwater irrigation, and investments to provide directly for regional economic development. Economists at UNL recently analyzed the effects of Lake McConaughy management options on the different water using groups and on the regional economy (Supalla et al., 2006).

Growing Crops for Better Biodiesel

Loren Isom et al. — Mon, 27 Oct 2008 11:33:53 PDT

Identifying high oil yield, low water use crops suitable for biodiesel production is a key component of addressing feedstock availability that will support the development of biodiesel production facilities in Nebraska. Expanded oilseed production can develop new economic opportunities for agricultural producers and suppliers in Nebraska.

The Economic Factors Influencing Producers’ Demand for Farm Managers

Keith H. Coble et al. — Mon, 27 Oct 2008 11:31:17 PDT

This paper primary objective is to analyze the economic factors influencing producers’ demand for farm managers. A survey of commercial farmers’ risk management was conducted by mail during the spring of 1999 in Mississippi, Texas, Indiana, and Nebraska. A Tobit econometric model was constructed to analyze the demand for farm managers. Results showed that a complementary relationship exists between marketing inputs and the decision to hire farm managers. The results indicate that, as farmers increase expenditure on marketing consultants and information systems, their expenditure on farm managers increase.

Simulated Analysis of Drought’s Impact on Different Cow-Calf Production Systems

Matthew C. Stockton et al. — Wed, 08 Oct 2008 12:48:49 PDT

Five representative, firm-level, stochastic simulation models were constructed using historical production cost, cattle prices, weather information and scientifically collected production data from the Gudmundsen Sandhills Laboratory operated by the University of Nebraska. The five hundred iterative results indicate the inclusion of crop residual grazing is a viable drought mitigation tool.

Testing the Impact of Corporate Farming Restrictions on the Nebraska Hog Industry

Holger Matthey et al. — Wed, 08 Oct 2008 12:44:44 PDT

This paper evaluates the implications of corporate restrictions on production agriculture using the case of the Nebraska hog industry. Corporate farming restrictions prohibit the acquisition or operation of agricultural land by nonfamily farm or ranch corporations. A partial adjustment model with a variable coefficient of adjustment is used to study the policy change. The results of the study support the hypothesis that the corporate farming restrictions in Nebraska have reduced the Nebraska hog industry’s ability to adjust its inventory to target levels. A significant shift in inventory adjustment behavior is shown to coincide with the enactment of the corporate restrictions.

Testing the Impact of Corporate Farming Laws on Hog Industry Growth: A Partial Adjustment Approach

Holger Matthey et al. — Wed, 08 Oct 2008 12:41:08 PDT

This paper analyzes the impact of corporate restrictions on the growth of the Nebraska hog industry. It utilizes a partial adjustment model to test the hypothesis that the restrictions hamper the development of the state's hog industry. The results support the argument that the regulations have slowed the growth of the Nebraska hog industry.

The Value of Additional Central Flyway Wetlands in Nebraska’s Rainwater Basin Wetland Region

Joan Poor — Wed, 08 Oct 2008 12:36:34 PDT

Nebraska’s Rainwater Basin wetland region is recognized internationally as a significant wetland complex for migratory waterfowl habitat. A contingent valuation study was undertaken to determine Nebraskan’s willingness-to-pay for government acquisition/management programs for this resource. The study consisted of a double bounded referendum format. A censored regression model was utilized for data analysis.

The Role of Non-parametric Approach in Adjusting Productivity Measures for Environmental Impacts

Saleem Shaik et al. — Wed, 08 Oct 2008 12:30:52 PDT

This paper addresses the role of non-parametric analysis in adjusting agricultural productivity measures for environmental impacts. The modified Tornquist-Theil index computed using shadow prices derived from the programming procedures is compared and contrasted with a nonparametric hyperbolic Malmquist index for the case of Nebraska agriculture.

Non-parametric Environmental Adjusted Productivity [EAP] Measures: Nebraska Agriculture Sector

Saleem Shaik et al. — Wed, 08 Oct 2008 12:27:57 PDT

Traditional total factor productivity [TFP] misrepresents the true change in agricultural productivity to the extent that environmental bads jointly produced with desirable outputs are unaccounted. Nonparametric productivity measures incorporating environmental bads are evaluated for Nebraska agriculture. The results indicate that prior to the 1980's the traditional TFP measures overstate productivity growth while it is underestimated afterwards, reflecting peak use of chemicals.

Welfare Differences Between Gross Water Pumped and Consumptive Use as Alternative Policy Control Variables to Meet Aquifer Management Objectives

Osei-Ageyman Yeboah et al. — Wed, 08 Oct 2008 12:23:19 PDT

The welfare cost of using gross water pumped instead of consumptive use as a control variable to meet consumptive use goal was estimated for Southwestern Nebraska. Crop simulation models for corn, grain sorghum, wheat and soybeans were estimated by EPIC. The models were then optimized for profit maximization under each irrigation scenario where groundwater is constrained through successive reductions. The results indicate that the social cost of reducing consumptive use is substantially overstated when using gross water pumped instead of consumptive use as the control variable, with the percentage difference declining as the size of the reduction increases. For example, the social cost of reducing consumptive use by 10 percent was 43 percent lower if it were achieved by directly controlling consumptive use instead of using the traditional approach of limiting gross water pumped. On a per acre basis, the average cost of a 10 percent reduction was $87.65 per acre foot of consumed water if consumptive use was controlled, and $156 per acre foot of consumed water if gross water was the control variable.