Improving Kansas Wheat Profitability through Variety Portfolios

Project Objective: The objective of this research is to apply portfolio analysis from the business investment literature to the selection of wheat varieties to maximize yields and minimize variability in yields. Adoption of variety portfolios would result in large and immediate increases in profits for Kansas wheat producers.

Project Description: Wheat yields are subject to risk. In Kansas, wheat variety selection is complicated by the unpredictable climate and diversity of soil conditions, since different varieties respond to weather and growing conditions in different ways. There are three major strategies for risk reduction using Kansas wheat varieties: (1) wheat breeding that develops new cultivars (varieties) that combine traits of multiple varieties to lower variability across growing environments, (2) blends, or mixtures of seeds from several varieties, and (3) planting a portfolio of multiple wheat varieties on different fields. Currently, many Kansas farmers plant more than one variety each year in the attempt to diversify the risk by growing varieties that respond differently to the environment. However, these variety combinations are typically selected based on variety descriptions, county demonstration plot results, intuition, and published average yields, rather than on statistical information that could enhance yields and minimize risk. Portfolio analysis can provide superior variety selection decisions that result in higher levels of profits.

Planting a portfolio of varieties and blends are effective strategies for Kansas wheat producers to reduce risk. The selection of varieties to include in the portfolio or blend could be greatly enhanced through portfolio analysis. Portfolio analysis provides a set of efficient outcomes that have higher average yields and lower variation than individual varieties alone. The key to this research is that wheat variety yields are related to each other: how well one variety does is related to how well other varieties perform. For example, financial investors don’t hold single assets. Instead, they hold groups or portfolios of assets, since there is a risk reduction from holding a portfolio of assets, if assets do not move in perfect unison. This is also true of wheat varieties: portfolios yield higher average returns and reduce risk.

Preliminary results from 1996 data demonstrated that by selecting an “optimal” portfolio, Kansas wheat producers could have increased yields by 8.81 bu/acre in Eastern Kansas, 4.28 bu/acre in Central Kansas, and 6.29 bu/acre in Western Kansas. This increase in wheat production would add over $207 million annually to wheat producer revenues, offsetting the cost of purchasing certified seed used in the portfolio. This research directly addresses the major goal of the KWC, “to improve the bottom line for Kansas wheat producers.”

Project Outcomes: The outcome of this research project will be recommendations for wheat varieties to plant for each crop reporting district in Kansas and the development of a general strategy for optimizing portfolios as new varieties are developed. The recommended portfolios will be tested against actual varieties planted to measure the benefits of adopting portfolios in each location. The recommendations would be “portfolios,” or groups, of several wheat varieties that maximize profit and reduce risk.

Progress Report

Much progress has been made on this research project, and we are on track for completion of the project by April 1. The data set of Kansas wheat variety yields has been compiled and made ready for use in a statistical study. This is a very large data set, with all experiment station wheat trial yields in Kansas for the period 1977-2006.

Preliminary statistical models have been estimated, and the results have provided preliminary results on wheat “portfolios,” or variety groups that could provide greater average yields and enhanced yield stability for Kansas wheat producers. The preliminary results demonstrate that enhanced yields and reduced yield variability are achievable through varietal selection.

The next phase of the project will be to effectively communicate the results of the variety portfolio model. This will include input from a diversity of perspectives. The results will provide solid information to wheat producers, breeders, and seed dealers on how to best achieve higher profits with less risk.