Marketing Margins and Price Uncertainty: The Case of the U.S. Wheat Market

This paper seeks to determine the effect of changes in output price risk on marketing margins. A theoretical model of price determination in a marketing channel with risk‐averse firms is developed. This model shows that if marketing firms ate competitive and decreasingly absolute risk averse, then an increase in output price risk should result in higher expected marketing margins. Empirical evidence from the wheat marketing channel supports the theoretical model: increased price variability significantly increases wheat marketing margins for both the farm‐mill margin and the mill‐retail margin. These results suggest a potential benefit from price stabilization programs.