How government policies affect the relationship between Polish and world wheat prices

Abstract

Cash prices for wheat in Poland are not closely related to futures prices in Chicago and London, for several reasons: differences in seasonality, fluctuations in exchange rate, poor dissemination of information in Poland, and most important the Polish government's intervention in wheat markets. Polish wheat prices generally move to expected intervention prices and then stay there until the next intervention level becomes known. The exception was in 1994-95, when sharply higher world prices raised prices in Poland. A wheat futures exchange in Poland could give the private sector a tool for hedging against price risk, improving efficiency and price discovery in Poland. It would be difficult to develop, however, under present interventionist policies. This situation could be improved by reducing the protection of prices and by making any intervention rules-based (reducing uncertainty about policies). Should intervention be reduced or rationalized, the next question is whether Poland needs its own wheat futures exchange or whether Poland's private sector can use futures exchanges in London and Chicago to hedge against risk. The answer to that question is not an easy one.Markets and Market Access,Payment Systems&Infrastructure,Environmental Economics&Policies,Labor Policies,Insurance&Risk Mitigation,Markets and Market Access,Access to Markets,Environmental Economics&Policies,Insurance&Risk Mitigation,Financial Intermediation