The Role of Index Trading in Price Formation in the Grains and Oilseeds Markets

We use both Granger‐causality and instrumental variables (IV) methods to examine the impact of index fund positions on price returns for the main US grains and oilseed futures markets. Our analysis supports earlier conclusions that Granger‐causal impacts are generally not discernible. However, market microstructure theory suggests trading impacts should be instantaneous. IV‐based tests for contemporaneous causality provide stronger evidence of price impact. We find even stronger evidence that changes in index positions can help predict future changes in aggregate commodity price indices. This result suggests that changes in index investment are in part driven by information which predicts commodity price changes over the coming months.     

Volatility Effects of Index Trading and Spillovers on US Agricultural Futures Markets: A Multivariate GARCH Approach

We examine the effects of speculation in the form of index trading on contemporaneous returns and volatility on corn, soybeans and wheat futures markets on the Chicago Board of Trade using multivariate generalised autoregressive conditional heteroscedasticity models and weekly data for 2006–2014. We also assess spillovers. Results are threefold. First, contemporaneous effects of index trading on own returns are positive and inelastic, and they are partially mitigated in the following week. Second, volatility depends positively on own past volatility, and volatility spillovers are limited. Third, index trading reduces own volatility.     

Price and Volatility Transmission and Market Power in the German Fresh Pork Supply Chain

We investigate the relationship between the transmission of price volatility and market power in the German fresh pork supply chain. We use a theoretical model underpinning this relationship followed by an empirical application that uses monthly farm, slaughterhouse and retail pork price data for the period 2000–2011. We examine both the relationships of market power with price level transmission and price volatility transmission in the chain. We use a vector error correction model and least squares regressions to analyse price transmission and price volatility transmissions, respectively. Results show that retail market power limited both types of transmissions. Competition inducing policy measures coupled with measures that support price risk management initiatives of chain actors are suggested.     

Drivers of food price in China: A heterogeneous panel SVAR approach

In this paper, we examine the effects of shocks in agricultural output, production material price and production price on China's food price using panel data of 26 provinces for the period 2004 Q1–2015 Q4. Employing a heterogeneous panel structural vector autoregressive (SVAR) model, we identify the causal flows between the endogenous variables via directed acyclic graphs method. The empirical results from impulse response functions and variance decompositions suggest sizeable cross‐province variations. The main driving force of food price is the price inertia shock, rather than the agricultural output or the vertical chain of price transmission shocks. The findings support the view that price expectation is the key shifter of food price. Moreover, the shocks in the vertical chain of price transmission are only weakly linked to food price. Our findings are robust to an alternative panel SVAR model identified via Cholesky decomposition.     

Volatility Forecasting and Time‐varying Variance Risk Premiums in Grains Commodity Markets

In this paper we examine empirically the predictive power of model‐free option‐implied variance and skewness in wheat, maize and soybeans derivative markets. We find that option‐implied risk‐neutral variance outperforms historical variance as a predictor of future realised variance for these three commodities. In addition, we find that risk‐neutral option‐implied skewness significantly improves variance forecasting when added in the information variable set. Variance risk premia add significant predictive power when included as an additional factor for predicting future commodity returns.     

Produce Retail Price Volatility and Perceptions in the Canadian Market: Nutrition Security Variances

Nutrition security has been studied but rarely in the context of a developed economy. Furthermore, few studies have looked at how fluctuating produce process may influence nutrition security and how consumers cope with abrupt macro-economic changes. Between 2014 and 2015, Canadian consumers saw produce prices jump by more than 25% in a year in some cases. This exploratory survey looks at socioeconomic factors and evaluates how price increases influence produce consumption and substitution. A total of 1007 respondents participated in a cross national survey over a two-week period. Results show that lower income households are more vulnerable than higher income respondents. Results also explore a few more behavioral factors such as where produce shopping occurs and how market data is gathered before purchases. Respondents who consult flyers and use apps are more likely to behave rationally and cope with changing prices. Some limitations are presented. And finally, future research thrusts related to produce price fluctuations and nutrition security are suggested.     

Fighting global food price rises in the developing world: the response of China and its effect on domestic and world markets

This article addresses how China is being affected by and is responding to the world food crisis. So far, Chinese officials have responded to higher world prices by drawing down stocks and limiting exports of major grains. These policy instruments were not available for soybeans, so domestic prices of soy and other oilseeds have risen with international prices. Using a global CGE model, we show that the initial world price rise was largely due to higher world oil prices and demand for biofuels as opposed to other factors, especially in maize and soybeans. China's response to this shock has kept domestic grain prices low relative to world grain markets and to domestic soybean prices. As grain stocks are depleted, however, demand growth will push domestic prices back into alignment. Anticipating this pressure on consumers and accelerating supply response through public investment will facilitate adjustment.     

Functional Land Management for managing soil functions: A case-study of the trade-off between primary productivity and carbon storage in response to the intervention of drainage systems in Ireland

Globally, there is growing demand for increased agricultural outputs. At the same time, the agricultural industry is expected to meet increasingly stringent environmental targets. Thus, there is an urgent pressure on the soil resource to deliver multiple functions simultaneously. The Functional Land Management framework (Schulte et al., 2014) is a conceptual tool designed to support policy making to manage soil functions to meet these multiple demands. This paper provides a first example of a practical application of the Functional Land Management concept relevant to policy stakeholders. In this study we examine the trade-offs, between the soil functions ‘primary productivity’ and ‘carbon cycling and storage’, in response to the intervention of land drainage systems applied to ‘imperfectly’ and ‘poorly’ draining managed grasslands in Ireland. These trade-offs are explored as a function of the nominal price of ‘Certified Emission Reductions’ or ‘carbon credits’. Also, these trade-offs are characterised spatially using ArcGIS to account for spatial variability in the supply of soil functions.To manage soil functions, it is essential to understand how individual soil functions are prioritised by those that are responsible for the supply of soil functions – generally farmers and foresters, and those who frame demand for soil functions – policy makers. Here, in relation to these two soil functions, a gap exists in relation to this prioritisation between these two stakeholder groups. Currently, the prioritisation and incentivisation of these competing soil functions is primarily a function of CO₂ price. At current CO₂ prices, the agronomic benefits outweigh the monetised environmental costs. The value of CO₂ loss would only exceed productivity gains at either higher CO₂ prices or at a reduced discount period rate. Finally, this study shows large geographic variation in the environmental cost: agronomic benefit ratio. Therein, the Functional Land Management framework can support the development of policies that are more tailored to contrasting biophysical environments and are therefore more effective than ‘blanket approaches’ allowing more specific and effective prioritisation of contrasting soil functions.