Components of Grain Futures Price Volatility

We analyze the determinants of daily futures price volatility in corn, soybeans, wheat, and oats markets from 1986 to 2007. Combining the information from simultaneously traded contracts, a generalized least squares method is implemented that allows us to clearly distinguish among time-to-delivery effects, seasonality, calendar trend, and volatility persistence. We find strong evidence of time-to-delivery (Samuelson) effects and systematic seasonal components with volatility increasing prior to harvest times— an indirect confirmation of the theory of storage.futures markets, Samuelson effect, seasonality, time to maturity, volatility, Crop Production/Industries, Risk and Uncertainty,

Volatility Persistence in Commodity Futures:Inventory and Time-to-Delivery Effects

Most financial asset returns exhibit volatility persistence. We investigate this phenomenon in the context of daily returns in commodity futures markets. We show that the time gap between the arrival of news to the markets and the delivery time of futures contracts is the fundamental variable in explaining volatility persistence in the lumber futures market. We also find an inverse relationship between inventory levels and lumber futures volatility.volatility persistence, theory of storage, volatility, futures markets, lumber, Agricultural Finance,

PEANUT QUOTA MARKETS AND PEANUT PRODUCTION AFTER FAIR

The U.S. peanut program has limited peanut production since 1949. Unlike the programs for grains, cotton, and rice, the 1996 FAIR Act left the peanut program largely intact. As before FAIR (and since 1977) the right to grow peanuts for the domestic edible market is embodied in marketing quota, which can be leased and sold. The FAIR Act for the first time allowed quota movement across county lines. We now have four years of experience with peanut quota markets post-FAIR. In some parts of the country, quota has moved as much as the regulatory caps allow. But in most of the traditional peanut-growing areas of the Southeast there has been little cross-county movement. In this paper we analyze a large county-level panel of pre- and post-FAIR data to assess the effects of these changes in policy. We have compiled from USDA-FSA sources data on quota movements for virtually every peanut-producing county in the seven major peanut-producing states. We use these data to test microeconomic predictions of the effects of the loosening of transfer restrictions. Analysis of the data shows large quota movements in areas where observations on additionals production and lease rates would have predicted such. We find that movements in production, as distinct from movements in quota, cannot be explained entirely by FAIR, but can reasonably be attributed to changes in the profitability of growing competing crops such as cotton. The reduced profitability of the latter might itself be attributed in part to the elimination of cotton deficiency payments.Agricultural and Food Policy,

Do Inventory and Time-to-Delivery Effects Vary Across Futures Contracts? Insights from a Smoothed Bayesian Estimator

Replaced with revised version of paper 07/15/08.volatility, theory of storage, futures markets, Bayesian econometrics, lumber, Marketing,

Does Futures Price Volatility Differ Across Delivery Horizon?

We study the difference in the volatility dynamics of CBOT corn, soybeans, and oats futures prices across different delivery horizons via the smoothed Bayesian estimator of Karali, Dorfman, and Thurman (2010). We show that the futures price volatilities in these markets are affected by the inventories, time to delivery, and the crop progress period. Some of these effects vary across delivery horizons. Further, it is shown that the price volatility is higher before the harvest starts in most of the cases compared to the volatility during the planting period. These results have implications for hedging, options pricing, and the setting of margin requirements.Bayesian econometrics, futures markets, seasonality, theory of storage, volatility, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Consumer/Household Economics, Demand and Price Analysis, Farm Management, Financial Economics, Marketing, Research Methods/ Statistical Methods, Risk and Uncertainty,

AN EMPIRICAL ANALYSIS OF HONEYBEE POLLINATION MARKETS

Pollination by honeybees plays an important role in modern agriculture. Some crops are greatly dependent on honeybees (almonds, apples, avocados, blueberries, and cherries are examples) while the yields and quality of other crops are significantly enhanced by honeybee pollination. The importance of understanding pollination markets has increased recently due to changes brought on by the twin scourges of Varroa and tracheal mites. Both are infestations of feral and domestic bees that imply greater future reliance on domesticated bees at higher cost. In the United States a complex market has evolved that connects itinerant beekeepers and their bee colonies with farmers who demand their services. While the fields of entomology and crop science have developed a large literature on general principles of beekeeping and its application to particular crops, there has been little economic analysis of pollination markets. In this paper, we begin to remedy this lack of attention by analyzing an extensive panel data set of individual pollination transactions for Oregon beekeepers. The Oregon panel constitutes a considerably larger and richer data set on pollination markets than the data set examined by Cheung (1973), which is our only empirical precedent. Using cross-sectional time series regression models, we find results that are consistent with Cheungs earlier findings on the consistency of pollination market outcomes with economic theory. Fees charged for placing colonies on crops that yield marketable honey are found to be less than for crops that yield no honey income to the beekeeper: the pollination fee for crops that produce honey is about $17 per colony less than for crops that produce no honey. Pollination fees also vary over time in response to changes in both crop prices and honey prices. Because bees are paid according to their value of marginal product in the production of crops, pollination fees should vary positively with crop prices. We find that a ten percent increase in crop prices causes pollination fees to increase by about$.40 per colony. With respect to honey prices, we find that a ten percent increase is estimated to decrease pollination fees by about $2.50 per colony. This estimated effect is a previously unexplored link between the now-defunct honey program and its longstanding public policy rationale, the encouragement of honeybee pollination. Insofar as the honey program successfully maintained the price of honey above levels that would otherwise have been observed, our analysis suggests that elimination of the program has resulted in a reduction in pollination services and an increase in pollination fees.Marketing,

How Farmers Bid Into the Conservation Reserve Program: An Empirical Analysis of CRP Offers Data

Replaced with revised version of paper 07/19/11.Land Economics/Use,

THE END OF SUPPLY CONTROLS: THE ECONOMIC EFFECTS OF RECENT CHANGE IN FEDERAL PEANUT POLICY

The paper analyzes recent changes in U.S. peanut policy as enacted in the 2002 Farm Security Act. A model representing the impact of the 2002 farm bill on the domestic and foreign prices of edible peanuts is constructed and the gains and losses to peanut producing states are measured.Agricultural and Food Policy,

The Effect of the GATT on U.S. Peanut Markets

The Uruguay Round of the General Agreement on Tariffs and Trade (hereafter, the GATT), which is to be signed by more than 10 nations on December 15, 1993, represents the culmination of seven years of negotiations on reforms of international trade. Assuming that the U.S. Congress will ratify the agreement, most, if not all, agricultural commodities produced in the United States will be affected in some way. The purpose of the present paper is to examine the likely effects of the GATT on U.S. peanut markets. Although the market value of U.S. peanut production is small compared to many other U.S. agricultural commodities, the impacts of the GATT on peanut markets are of considerable interest for at least two reasons

19th Annual Conference on Legal Issues For Financial Institutions

Materials from the 19th Annual Conference on Legal Issues For Financial Institutions held by UK/CLE in May 1999