Improving the accuracy of outlook price forecasts

This study investigates the predictive ability of outlook hog price forecasts released by Iowa State University relative to alternative time‐series and market forecasts. Under root mean squared error (RMSE), the futures market forecast is most accurate at the first and second horizon but less accurate than Iowa outlook and the other forecast methods at the third horizon. In terms of the individual time‐series models, some vector autoregressions (VARs) and Bayesian VARs flexible in specification and estimation and model averaging tend to perform better than Iowa outlook forecasts. Evidence from encompassing tests, more stringent tests of forecast performance, indicates that many price forecasts can add incremental information to the Iowa forecast. Simple combinations of these models and outlook forecasts are able to reduce forecast errors by economically significant levels. Overall, the results indicate that it is possible to provide more accurate forecasts than Iowa outlook at every horizon.     

How Reliable Are Hog Futures as Forecasts?

The Chicago Mercantile Exchange hog futures contract was revamped in 1997 and it is one of the largest futures markets for a nonstorable commodity. The literature is divided on whether or not futures prices for nonstorables provide reliable forecasts of cash prices. We find that from 1998 to 2004, the hog futures market was an unbiased predictor of cash prices.     

Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures

This article examines the puzzle of why futures prices continue to react to USDA crop reports despite the fact that reports appear to be no longer "newsworthy," that is, provide no better production estimates than private forecasts. The information value of reports is measured in terms of their influence on rational agents' harvest-time corn price expectations, which are uncovered using a Hamilton-type modeling approach. Results show that reports are still "newsworthy," as they would contribute to agents' price expectations if released a day early. Thus futures price reactions, which closely reflect price expectations, are rational and consistent with efficient markets hypothesis.     

Forecast performance of WASDE price projections for U.S. corn

We conduct a comprehensive evaluation of the season‐average price projections for U.S. corn as published by the U.S. Department of Agriculture's World Agricultural Supply and Demand Estimates (WASDE), an important issue given reduced resources and increased program scrutiny within the Federal Government. This study is the first in the literature to evaluate the WASDE corn projections relative to futures adjusted forecasts throughout the forecasting cycle using a lengthy evaluation period (1980/81–2012/13). We find that WASDE projections provide lower RMSEs relative to futures adjusted forecasts for 9 of the 16 forecast periods, 4 of which are statistically different. Encompassing tests show that WASDE projections often provide incremental information not present in the futures adjusted forecasts. Composite forecasts based on futures adjusted forecasts and WASDE projections reduced the RMSEs over all forecast periods by an average 12–16%. Favorable average trading profits may be generated for some forecast months using WASDE projections. Overall, our results suggest that WASDE projections of the U.S. corn season‐average price provide useful information to the market and could enhance the efficiency of the agricultural sector.     

Unbiasedness and Market Efficiency Tests of the U.S. Rice Futures Market

This study examines short-run and long-run unbiasedness within the U.S. rice futures market. Standard OLS, cointegration, and error-correction models are used to determine unbiasedness. In addition, the forecasting performance of the rice futures market is analyzed and compared to out-of-sample forecasts derived from an additive ARIMA model and the error-correction model. The results of our unbiasedness tests and the forecasting performance of the rice futures market provide supporting evidence that the U.S. long-grain rough rice futures market is efficient. The results have important price risk management and price discovery implications for Arkansas and U.S. rice industry participants.     

New Futures Markets in Agricultural Production Rights: Possibilities and Constraints for the British and Dutch Milk Quota Markets

Farms are increasingly being affected by policies that involve production rights. Because of fluctuations in the prices of these rights in the spot market, farmers face a price risk. Establishing a futures market might enable them to hedge against this price risk. Rights futures have some features that differ from those of traditional commodity futures. This makes them an effective and efficient tool for managing price risk. The implications of these findings will be illustrated for milk quotas in the United Kingdom and The Netherlands. Prior conditions which might make a futures market for milk quotas successful in both countries will be deduced.     

Do Futures Benefit Farmers?

Simulations are used to analyze welfare and market- and farm-level effects of making futures available to producers of a storable commodity. Key features of the model are the explicit consideration of dynamic impacts due to inventories, and of aggregate market effects associated with futures adoption by some producers. Application to the natural rubber market shows that futures availability can lead to sizable market- and farm-level effects. Futures availability enhances consumer welfare, reduces nonadopter welfare, and yields important welfare gains for adopters when their market share is small and welfare losses when they account for a sufficiently large market share.     

Evaluation of USDA Interval Forecasts of Corn and Soybean Prices

USDA World Agricultural Supply and Demand Estimates (WASDE) price forecasts are published as an interval, but are typically analyzed as point estimates. Thus, all information about uncertainty imbedded in the forecast is ignored. The purpose of this article is to evaluate the accuracy of WASDE corn and soybean price forecasts using methodology suitable for testing judgmental interval forecasts. Accuracy tests suggest that WASDE forecasts are not calibrated at the 95% confidence level for both commodities and generally not calibrated for corn, but calibrated for soybeans, at the implied confidence level elicited from the survey of forecast providers.     

Causality and Efficiency in the Coffee Futures Market

Tests for causality and rationality in the coffee futures market were carried out using data from the New York Market. Tests of causality indicated that futures prices strongly influence variations in spot price eight weeks or more to maturity. However, beginning seven weeks to maturity there seems to be a strong causal relationship going from futures to spot and from spot to futures. Risk constancy or neutrality, equality of risk premium and spot price, and efficiency were rejected for the period 18, 51, and 33 weeks or more to maturity. However, simultaneity of risk neutrality and efficiency was accepted for contracts with 55-77 weeks to maturity. The general conclusion from this study is that coffee futures market can be used as an indicator of spot market prices for contracts with 55-77 weeks to maturity. While benefits can be obtained through short term adjustment of available stock and making use of quality storage facilities, planning longer term planting and marketing decisions (e.g., ≥ 77 weeks) on the basis of futures market price can result in misallocation of resources and welfare loss.     

Futures Markets and Spot Price Volatility: A Case Study

Futures markets, where they exist, can play a crucial role in determining the storage decision in the underlying spot (physical) market. The futures market acts as a conduit for market information and is a gatherer of agents' expectations about the future prospects for the spot market. As such, it is able to provide both price insurance and price discovery roles, the latter of which generates information for spot market traders and allows them to make rational storage decisions. If this were to be the case, then the efficiency of storage is improved which can potentially lead to a reduction in the volatility of spot prices over the marketing season. The existing literature is ambiguous as to whether futures markets can help spot markets price more efficiently. This paper seeks to examine whether this is the case in the British maincrop potato market by evaluating the volatility of spot prices over the period 1969–96 in a “before-after” analysis of the impact of the introduction of futures trading in 1980. The results suggest that the introduction of the futures market has led to a reduction in price volatility, despite some problems in the operation of the futures market itself.     

中加菜籽油期货市场波动溢出实证研究

利用误差修正模型、BEKK-GARCH模型和格兰杰因果关系实证研究了加拿大和中国菜籽油期货市场之间的信息传导、波动溢出和价格引导关系。实证结果显示：这两个市场之间存在一定的信息传导关系;加拿大菜籽油期货市场对中国菜籽油期货市场存在显著的波动溢出效应,而中国菜籽油期货市场对加拿大菜籽油期货市场的波动溢出不显著;短期内加拿大菜籽油期货市场对中国菜籽油期货市场的价格引导作用更强些,这与加拿大菜籽油期货市场是全球菜籽油定价中心的实际相吻合,而中国菜籽油期货市场的竞争力有待进一步提升。     

A Marketing Approach to Commodity Futures Exchanges: A Case Study of the Dutch Hog Industry

This paper proposes a marketing strategic approach to commodity futures exchanges to optimise the (hedging) services offered. First, the environment of commodity futures exchanges is examined. Second, the threats and opportunities of commodity futures exchanges are analysed. Our analysis demonstrates that market orientation is an important element in the market strategies of commodity futures exchanges. Our market strategic framework is applied to the Dutch hog futures market. It is concluded that market penetration is an appropriate strategy. Consequently, to identify the variables that distinguish between farmers who initiate futures positions and farmers who do not, we conducted a discriminant analysis on data gathered from 418 Dutch hog farmers. The discriminant analysis shows that latent variables, such as farmers' perceived performance, farmers' reference price and farmers' market orientation, are important discriminating variables. Furthermore, farmers' cash market behaviour (in terms of the frequency of selling in the spot market) is an important discriminating variable as well. The usefulness of these results as input for a penetration policy is demonstrated.     

Are Revisions to USDA Crop Production Forecasts Smoothed?

This article uses Nordhaus' framework to determine the efficiency of the revision process for USDA corn and soybean production forecasts over the 1970/1971 through 2004/2005 marketing years. Positive autocorrelation and consistency of directional changes in forecast revisions suggest these forecasts are "smoothed." Evidence is provided that the loss in forecast accuracy due to smoothing is statistically and economically significant in several cases. A conservative bias in farm operators' assessments of yield potential and in the procedure for translating enumerator's information about plant fruit counts into objective yield estimates are identified as plausible sources of smoothing.     

Is a Futures Market Viable in Turkey? The Case of a Cotton Futures Market

Abstract

Many countries as they reduce price controls develop an interest in futures markets as a way to manage risk. This article explores the potential of using existing futures markets to hedge cotton in Turkey. Futures prices in New York and Liverpool are not cointegrated and only weakly correlated with cash prices in Izmir. Thus, existing futures markets have limited ability to reduce the risk faced by the cotton industry in Turkey. While there are obstacles to overcome, there does appear to be a potential demand for a cotton futures market in Turkey.     

Feasibility of Trading International Futures Contracts for Shelled Peanuts

A survey of the world-wide peanut industry was conducted to investigate the feasibility of an international shelled peanut futures contract. The study finds that there is a substantial interest and favorable attitudes toward the futures markets and the proposed contract among the respondents. The potential trading volumes, based on the survey responses and international trade statistics, were estimated to fall between 113,745 and 562,645 contracts (20 metric tons per contract). The estimates were considered high enough to indicate a potential for successful introduction of the contract to a futures market.     

充分发挥期货市场对农业农村现代化的服务功能

农产品期货市场作为我国重要的金融基础设施,历经30年探索实践,在服务农业农村现代化方面做出显著贡献。其通过提升价格发现效率、丰富风险管理手段、创新业务模式和品种等方式,对内有利于提升农业产业规范化水平,改善农业生产经营模式,促进地方优势产业发展,切实保障农民利益,对外有利于提高我国农产品的国际影响力和定价权。但中国与美国等国际成熟市场存在明显差距,要进一步提升服务农业农村现代化水平。并且中国面临农产品期货发展不充分、国际化程度不高、区域农产品市场规模小、"保险+期货"等模式有待深化等问题。农产品期货市场要通过巩固市场发展基础、创新农业服务机制、增加特色新品种供给、完善现有保障模式、扩大对外开放等方面,提升服务农业农村现代化的深度和广度。     

The Role of Farmer's Behavioral Attitudes and Heterogeneity in Futures Contracts Usage

The relationship between farmers' behavioral attitudes and use of futures contracts is examined, taking into account non-directly observable variables and the heterogeneity of farmers. The relationships are tested on a stratified data sample of 440 farmers. Cluster analysis and covariance structure equation models are used to validate the relationships. Farmers are found not to be homogenous regarding the factors influencing their use of futures. Heterogeneity at the segment level masked important effects at the aggregate level, notably risk attitude. Furthermore, several psychological constructs for farmers related to market orientation, risk exposure, market performance and entrepreneurial behavior play important roles in their use of futures contracts.     

Surprise and dispersion: informational impact of USDA announcements

We examine the role of information asymmetry on changes in bid‐ask spreads during major United States Department of Agriculture (USDA) announcements. Our analyses, using corn, wheat, and soybean futures, indicate that information asymmetry is significantly higher on USDA announcement days compared to nonannouncement days. We further observe that the increased information asymmetry prior to news announcements is mainly driven by the divergence in private information possessed by market participants. However, once the USDA news is released, not only the dispersion in investors’ private information but also the surprises in news announcements contribute to increased information asymmetry and widening of bid‐ask spreads.     

Structural Breaks and the Relationship between Barley and Wheat Futures Prices on the London International Financial Futures Exchange

Co-movement between futures prices can arise when commodities are substitutes. Counterintuitively, Dawson and White fail to find a significant long-run link between feed barley and wheat prices on the London International Financial Futures Exchange. This relationship is re-examined using  Johansen, Mosconi, and Nielsen's co-integration procedure that permits structural breaks. Results show evidence of co-integration and hence price discovery. There is a significant break in October 2000 following Common Agricultural Policy intervention price reductions, the barley–wheat futures market is perfectly integrated, and the barley price Granger-causes the wheat price. Modeling structural breaks in price relationships appears important.     

What Killed the Diammonium Phosphate Futures Contract?

Using a survey of industry participants, and an analysis of price relationships, this paper investigates the demise of the diammonium phosphate futures. The results indicate the diammonium phosphate cash and futures markets were not well linked. The results also suggest that the initial specifications of diammonium phosphate futures contract may have resulted in its use as a forward contract with a high rate of delivery, reducing market participation and limiting liquidity. Ultimately, the contract failed because it was a poor hedging tool, and was perceived by the industry not to offer benefits beyond existing contracting and risk management practices.