Financial activity in agricultural futures markets: evidence from quantile regressions

This study analyses the relationship between financial activity and price returns in 12 US agricultural futures markets. It contributes to the existing research by exploring the forecasting power of trading activity for returns from the perspective of conditional quantiles. Quantile regressions detect Granger‐causal effects from positions of speculators and index traders to price returns in a wide range of commodity markets such as cocoa, coffee, corn, sugar and SRW wheat.     

价格支持、政策调整及粮食市场波动

目的 为了估计价格支持政策对不同粮食品种期现货价格波动的直接影响,实证分析和比较了政策及其调整对粮食期现货价格波动实施效果的影响,为深化粮食价格形成机制改革提供一定的理论参考和实证支撑。方法 文章利用稻谷、小麦、玉米和大豆的现货与期货价格日数据,将政策以虚拟变量的形式引入GARCH模型实证分析最低收购价政策、临时收储政策及其调整对平抑粮食期现货市场波动的作用。结果 价格支持政策对粮食价格波动产生了显著影响,最低收购价政策能够明显降低稻谷和小麦现货市场的波动程度,但对期货市场波动的作用则相反;玉米和大豆临时收储政策的取消导致现货市场波动性提高,而对期货市场波动的影响存在差异。结论 价格支持政策具有降低价格波动的作用效果,政策调控效果与实施品种的国内供求及市场形势、国内外市场的联系程度密切相关,政策的完善还需关注对期货市场波动的影响。     

Commodity futures markets: a survey

This review article describes the main contributions in the literature on commodity futures markets. It is argued that modern studies have focused primarily on technical questions, with insufficient economic content. More research needs to be directed towards understanding fundamental economic issues such as why so few farmers hedge, the impacts of government farm programs on commodity futures, and the market impacts of commodity pools. The literature has failed to explain the prevalence of inverted markets in grains and oilseeds, and there is unexplainable price volatility in markets such as hogs and orange juice.     

Hedging Opportunities for Canadian

The unprecedented commodity price volatility in the last decade has resulted in a growing interest in futures trading by farmers. One of the major reasons often provided for the usefulness of commodity futures markets is that they provide a mechanism whereby producers can shift the risk of price change onto others. Interestingly, little research has been conducted on the effectiveness of the WCE as a hedging tool for farmers.
The objective of this paper was to investigate the extent to which the futures contracts for rapeseed, barley and flaxseed can be used by farmers in order to reduce price risk (measured by volatility). Drawing on earlier literature, the theory of hedging was reviewed and formulae for estimating the optimal hedge and the effectiveness of hedging were presented. An empirical analysis determined that the Winnipeg rapeseed, barley and flaxseed futures contracts are very useful in terms of allowing a producer the opportunity to reduce exposure to price risk.     

Futures markets and price stabilisation: An analysis of soybeans markets in North America

The objective of this paper was to determine whether the futures markets have a stabilising or destabilising impact on soybean's spot prices in North America. Directed acyclic graphs (DAGs) are used to test for causality between futures prices, spot prices and ending stocks, followed by time series econometric analysis. The DAGs point to the two-way causal link between futures and spot prices and a lack of a causal link between inventory/stocks and spot price volatility. Time series results, including cointegration, vector error correction, impulse response and variance decomposition analysis, indicate a large impact from futures markets on the level and volatility of soybean spot prices in both the short and long run. These results have potentially important implications, as the impact of commodity price volatility is typically asymmetric across different actors. Farmers, for example, unlike speculators, utilise price risk management (PRM) instruments such as futures markets to mitigate price risks and appear to suffer from intensified volatility precisely because of their use of these instruments. Therefore, additional policies to cope with commodity price volatility, such as direct price controls or mitigation of consequences, can have critical stabilising functions supporting farmers' welfare and regional (rural) development.     

Volatility and Price Jumps in Agricultural Futures Prices—Evidence from Wheat Options

Evidence suggests that agricultural futures price movements have fat-tailed distributions and exhibit sudden and unexpected price jumps. There is also evidence that the volatility of futures prices is time-dependent both as a function of calendar-time (seasonal effect) and time to maturity (maturity effect). This article extends Bates' (1991) jump-diffusion option pricing model by including both seasonal and maturity effects in the volatility specification. Both in-sample and out-of-sample procedures to fit market option prices on wheat futures show that the suggested model outperforms previous published models. A numerical example shows the magnitude of pricing errors for option valuation.     

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。     

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.     

Did Futures Markets Stabilise US Grain Prices?

Though economists are divided over whether, in practice, futures markets reduce spot price volatility, observers of nascent nineteenth century US futures markets essentially praised the stabilising effects of this financial innovation. Indeed, such praise is understandable, particularly if, as the Chicago Board of Trade (CBOT) and others assert, “violent” spot price fluctuations were common prior to, but not after, the 1870s; the same decade that grain trade historians typically associate with the birth of the modern futures contract. And whereas these events may be unrelated, the claim is intriguing because it requires that nineteenth century futures prices fulfil their price discovery function, a property that many modern futures markets do not possess. This paper explores what role, if any, the advent of futures trading may have had on spot price volatility. I corroborate the CBOT's assertion regarding diminished spot price volatility around the 1870s and show that early futures prices did indeed fulfil their price discovery function. Moreover, I address two alternative hypotheses that relate the decline in spot price volatility to the Civil War. Ultimately, I maintain that the evolution of futures markets is the principal proximate reason why commodity spot price volatility diminished.     

A speculative bubble in commodity futures prices? Cross‐sectional evidence

Recent accusations against speculators in general and long-only commodity index funds in particular include: increasing market volatility, distorting historical price relationships, and fueling a rapid increase and decrease in the level of commodity prices. Some researchers have argued that these market participants—through their impact on market prices—may have inadvertently prevented the efficient distribution of food aid to deserving groups. Certainly, this result—if substantiated—would counter the classical argument that speculators make prices more efficient and thus improve the economic efficiency of the food marketing system. Given the very important policy implications, it is crucial to develop a more thorough understanding of long-only index funds and their potential market impact. Here, we review the criticisms (and rebuttals) levied against (and for) commodity index funds in recent U.S. Congressional testimonies. Then, additional empirical evidence is added regarding cross-sectional market returns and the relative levels of long-only index fund participation in 12 commodity futures markets. The empirical results provide scant evidence that long-only index funds impact returns across commodity futures markets.     

Renewable versus nonrenewable resources: an analysis of volatility in futures prices

This study outlines a new approach for differentiating commodity futures based on their exhaustibility. Various aspects of volatility in the futures prices of renewable resources (palm oil, coffee, soya beans, rice, wheat and corn) and nonrenewable resources (zinc, aluminium, natural gas, gold, crude oil and copper) are studied, exploring whether volatility is greater in the former than in the latter. We use a generalised autoregressive conditional heteroskedasticity (GARCH) model to test our main hypothesis that the volatility in futures prices for renewable resources has recently been equal to or greater than the volatility in futures prices for nonrenewable resources. Our key findings suggest that futures prices for some renewable resources have greater variance than those for benchmark crude oil in a simulated GARCH series. We extend our analysis using a nonlinear vector smooth transition autoregressive (VSTAR) model to test for the existence of a shifting‐mean tendency in the commodity series that we researched. We show that transition from a stable to a volatile regime is more abrupt for renewable resources.     

Measuring the Volatility of Wheat Futures Prices on the LIFFE

Agricultural prices rose dramatically in 2007 and have subsequently fluctuated at high levels. This paper estimates the volatility of daily wheat futures prices on the Euronext/London International Financial Futures and Options Exchange for 1996–2012 using an exponential generalised autoregressive conditional heteroscedasticity model with a constant (price) elasticity of variance (CEV) and a broken trend. Results show that volatility is highly persistent; there is a structural break in volatility in June 2007 when volatility rose by 10%; subsequently, the wheat futures price has become more volatile; and the CEV is 0.04.     

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.     

Market-Based Price-Risk Management: Welfare Gains for Coffee Producers from Efficient Allocation of Resources

The volatility of coffee prices exposes coffee producers to price risk. Price risk is one of many risks faced by commodity producers in developing countries. Coffee is widely traded in the international commodity derivative markets. This offers scope for coffee producers to manage their price risk by hedging on these markets. The hedging mechanism recommended is based on the use of coffee futures and options. The mechanism involves costs, so the benefits of hedging need to be evaluated in order to assess its usefulness for producers. It emerges that the main benefit lies in producers being able to allocate resources more efficiently in the production of coffee. An analysis of theoretical and field evidence shows that this benefit can potentially be quite high, especially for risk-averse producers. This underlines the need to provide producers with access to suitable price-risk hedging mechanisms.     

新冠肺炎疫情冲击粮食安全:趋势、影响与应对

新冠肺炎疫情在全球加速扩散蔓延,引发全球粮食市场异常波动以及对中国粮食安全的担忧。疫情对后期全球粮食生产与贸易的影响将进一步加大,全球粮食市场波动有可能进一步升级。随着全球金融市场充分释放流动性,国际投机资本若炒作农产品市场,爆发类似2008年粮食危机的风险将越来越高。分析表明,中国粮食安全保障体系总体上可从容应对全球粮食市场波动升级的挑战,但大豆等农产品进口需防控国际市场波动风险。本文认为,要高度重视全球粮食市场波动的可能风险和挑战,必须加强监测、及早谋划,系统应对、综合施策。包括:有效管控输入性不稳定预期对国内粮食市场的干扰和冲击;进一步强化粮食生产能力建设;构建国家粮食安全保障风险治理体系;完善重要农产品储备体系;强化农产品全球供应链管理;加强国际粮食安全、贸易和投资政策协调。     

Extent and possible causes of intrayear agricultural commodity price volatility

Wheat, corn, rice, soybeans, and cotton experienced higher volatility in the second half of the 2000s. For the sample at hand, the unit root tests only validate a new period of high volatility for wheat and cotton. If in the next couple of years however, corn, rice and soybeans maintain their higher volatility, a new period of high volatility may also be validated statistically. Regarding the factors driving the intrayear volatility GMM estimates show that “commodity market fundamentals” i.e., the stock‐to‐use ratio and to a lesser extent the degree of internationalization, are the most systematically statistically significant coefficients among commodities. Over time, consecutive low stock‐to‐use ratios and a thin international market provoke typically high volatility. Speculative activity and liquidity in the agricultural derivative market have a stabilizing effect on the spot price, if any. Finally, “common macro” factors significantly impact volatility, especially the volatility of petrol and of exchange rates; their dispersion importance over the sample is quite sizeable. However, it is difficult to establish a link between, on the one hand, loose monetary policy, business cycle and inflation, and, on the other hand, commodity price volatility, as the sign of the estimated coefficient changes depending on the commodity and the estimated elasticities are quite low.     

The use of organized commodity markets to manage food import price instability and risk

The article explores the possibility of insuring the price risks of wheat and maize imports of low‐income food‐deficit countries (LIFDCs). Optimal strategies for an importing agent, who hedges with futures and options are derived, based on the objective of minimizing the unpredictability of import bills. Ex post simulations for a set of LIFDCs are run on wheat and maize imports hedged with futures and options in the Chicago Board of Trade, to explore the extent to which hedging reduces the unpredictability in import bills. Simulations encompass both periods of normal price behavior, as well as the period of global upheaval that occurred in 2007 and 2008. Results show that hedging with futures alone affords agents considerable opportunities for reducing import cost unpredictability, and the same holds with options, albeit, to a lesser extent. However, during the recent price spike of 2007–2008, hedging with options would have increased the unpredictability of some countries’ maize import bills, due to the combination of erratic import patterns and pronounced market uncertainty.     

Agricultural Producer Price Expectations

Producer price expectations underlie much of agricultural supply analysis. While producer price expectations would ideally be discovered experimentally, this is too costly. Instead, producer price expectations are usually represented in agricultural supply analysis by easily obtained hypothesized expectation formulations. In most cases, the hypothesized expectation formulations are functions of past prices. However, other formulations are sometimes used, such as current cash and futures prices, or initial payments in the case of grains marketed by the Canadian Wheat Board. This paper compares actual producer price expectations with a variety of hypothesized expectation formulations for wheat and canola in Saskatchewan. A test developed by Granger is used to determine the proxy models that are significantly dominant. The model that dominates as a proxy in the case of wheat price expectations is the two-year declining-weight moving average. The two models that dominate as a proxy in the case of canola price expectations are the first-order autoregressive and, as well, the two-year declining-weight moving average. There is no significant difference between the two models. Somewhat surprising is the performance of formulations based on futures prices. These formulations perform very poorly in representing producers' price expectations, even though they are found to be among the most accurate predictors of actual commodity prices. An even more interesting observation is the performance of the futures price model in the canola market. Even though the November contract in January explains very little of the variation in the actual commodity prices for that year, its error in predicting canola prices is not significantly greater than that of the best performing, the four-year declining-weight moving average, based upon the root mean squared error criterion.     

Efficiency tests of agricultural commodity futures markets in China

The efficiency of the Chinese wheat and soybean futures markets is studied. Formal statistical tests were conducted based on Johansen's cointegration approach for three different cash markets and six different futures forecasting horizons ranging from 1 week to 4 months. The results suggest a long-term equilibrium relationship between the futures price and cash price for soybeans and weak short-term efficiency in the soybean futures market. The futures market for wheat is inefficient, which may be caused by over-speculation and government intervention.     

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.