Price Relationships in Processors' Input Market Areas: Testing Theories for Corn Prices Near Ethanol Plants

This study examines corn pricing in the vicinity of processing plants. We develop and test several price‐distance models for cargo, insurance and freight (CIF) plant pricing in the presence of varying degrees of exporter competition, and for discriminatory free‐on‐board (FOB) pricing at the farm. The price‐distance functions describing spatial prices near processing plants all depend on local transport costs. But the pricing system (CIF or FOB) and the extent of local competition define the level and spatial rate of change in prices.Estimations of an empirical price‐location function for Iowa during the spring of 2003 suggest that prices near the plants of four conventional businesses conform to the CIF pricing model. But prices near producer‐owned firms or farmer cooperatives failed to show any statistically significant effect on nearby prices. One plant had a price‐distance function that resembled FOB pricing.