The dissertation investigates the role of risk and commodities futures markets as risk management tools, and how they affect storage behavior, cash price formation and exports. The first essay analyzes the effect of the development of a futures market on storage and spot price volatility. Commodity storage is inherently risky since the agent cannot know the output price. The more risk averse are storers, the less storage they will undertake. The development of a futures market allows storers to eliminate price risk by allowing the storer to lock-in a return to storage. Theory shows that when a futures market develops, more storage occurs. Spot price then becomes less variable, since the more storage that occurs, the less spot price must adjust to shocks. Empirical analysis using data from the Chicago Board of Trade reveals that the results are sensitive to the competitive structure of the futures market. If the futures market is subject to manipulation, spot price variance increases, despite increased storage, due to artificial price spikes caused by attempted corners. The second essay models the effect of basis risk on storage behavior. The use of futures markets introduces basis risk, which arises because futures contracts do not correspond exactly to the commodity being hedged. The more closely the storer's wheat matches the wheat designated in the futures contract, the less basis risk is introduced, and the more storage occurs. The hypothesis that lower basis risk induces more storage is tested by estimating storage and drawdown curves for major corn and soybean markets. Results are mixed, though for many markets basis risk reduces storage, and increases the rate of drawdown. The third essay models storage and export behavior of each major wheat exporting country. While all agents can use American wheat futures markets, the only active wheat futures markets, foreign agents face exchange rate risk as well as basis risk. Thus, foreign agents face more risk than do American agents, and the model predicts that they will rely more on exports than on storage to absorb production shocks. Estimated export and storage equations are consistent with the hypothesis that risk affects storage and export behavior.Ph.D.EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/103125/1/9303795.pdfDescription of 9303795.pdf : Restricted to UM users only
