SPATIAL MARKET INTEGRATION: DEFINITION, THEORY, AND EVIDENCE

A point-space model of interregional trade is used to define market integration and to explore its implications for modeling spatial price relationships. This analysis indicates that spatial prices are related nonlinearly, contrary to much of the work on spatial price analysis which uses linear models. As an empirical example, corn market integration along the Mississippi River is examined during the Midwest flood of 1993. Higher transport costs during this period significantly reduced the extent of integration and thereby decreased excess demand shock transference across regions.Agribusiness,

Loan Deficiency Payments and Minor Crops

Agricultural Finance,

An Exploration of Market Pricing Efficiency: The Dairy Options Pilot Program

Put options have been recommended as a substitute for price support programs (Gardner, 1977), and subsidized option purchases have received some support in lieu of subsidized insurance programs. Put options are an interesting alternative to price supports because their market-determined price levels allow for flexibility and adjustments to relevant current and expected market conditions. One difficulty with the use of put options as a substitute for commodity price supports is the relative thinness of these options markets for some commodities. Market thinness is defined here as the absence of traders willing to take the necessary opposite position in the market in lieu of a relatively large price premium, particularly for a large number of contracts. We explore empirically how a thin market responds when trading increases as a result of a subsidized put option program. USDA initiated the Dairy Options Pilot Program (DOPP) in 1999 in an effort to provide dairy producers with real-world experiences trading options (Vandeveer et al., 2003). Subsequently, additional rounds of DOPP occurred to give more producers a chance to participate. In total, over 1,300 producers bought 6,500 milk put option contracts through the DOPP program from 1999 to 2002. In contrast, over this four-year period total put options traded at the CME milk futures market totaled over 36,000 contracts. This, the volume from the DOPP program represented a fairly large share of total trading activity in the dairy put options market. An interesting feature of the subsidized milk options program is that dairy farmers may have made relatively little use of commodities markets due to the long-standing dairy price support programs. If this is the case, many of the dairy farmers making use of this subsidized options purchase program would have been relatively uniformed traders. Although DOPP may have increased trading volume, market performance may or may not have been enhanced due to the relative unfamiliarity with options trading by these dairy producers. We define a measure for observed options pricing efficiency using Black's formula in our study of the DOPP program, and statistically evaluate the size of the "error" in options pricing. We find that DOPP trades occurred at statistically significantly higher prices than did other trades, that DOPP volume had a price-reducing effect on other options trades, and that some brokers with large DOPP volume filled these orders at relatively large prices.Marketing,

TESTING MARKET EQUILIBRIUM: IS COINTEGRATION INFORMATIVE?

Cointegration methods are increasingly used to test for market efficiency and integration. The economic rationale for these tests, however, is generally unclear. Using a simple spatial equilibrium model to simulate equilibrium price behavior, it is shown that prices in a well-integrated, efficient market need not be cointegrated. Furthermore, the number of cointegrating relationships among prices is not a good indicator of the degree to which a market is integrated.Demand and Price Analysis,

An Exploration of Market Pricing Efficiency During the Dairy Options Pilot Program

Marketing,

Segregation of Grain Markets: Consequences for Price Behavior

The introduction of genetically modified grain and oilseed products at the farm level and resistance for these products by consumer groups have led to segmentation in grain markets. This study explores the implications for market price behavior for a segregated soybean market for genetically modified (GM) and non-GM varieties. A stochastic dynamic simulation model of production and storage is solved, and Monte Carlo simulation procedures are used to examine price behavior between GM and non-GM soybeans. The results suggest important differences in price behavior between GM and non-GM soybeans. The results obtained in the model simulations are compared with evidence from the Tokyo Grain Exchange, where non-GM and GM soybean futures contracts have traded simultaneously since May 2000. The evidence from the Tokyo Grain Exchange contracts is largely consistent with the results of the simulation model. Price correlations between the Tokyo Grain Exchange non-GM and GM soybean contracts tended to be similar in magnitude to those found in the simulations.genetically modified organisms, soybeans, storage, Demand and Price Analysis,

An Exploration of Market Pricing Efficiency: The Dairy Options Pilot Program

Demand and Price Analysis,

What is the Value of Cattle Quality Information? Evidence from the Montana Beef Network

Production Economics,

The Impact of Canadian Wheat Imports on Regional U.S. Wheat Prices

Demand and Price Analysis,

EXPERIMENTAL MARKETS USING THE ELECTRONIC MARKET PLACE (EMP)

A computer system for implementing electronic markets on networks of personal computers is described. The program allows a researcher or teacher to design market simulations to meet a variety of goals, and records a complete set of market activities for analysis. Illustrations of example markets are provided, and the classroom application of market simulations in teaching agricultural economics is discussed.Computer software, Experimental economics, Simulations, Marketing,