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Price Discovery and the Basis Effects of Failures to Converge in Soft RedWinter Wheat Futures Markets

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  • Karali, Berna
  • McNew, Kevin
  • Thurman, Walter N.

Abstract

Wheat futures contracts failed to converge to spot prices at delivery locations in 2008–2009. By analyzing basis at nondelivery locations surrounding this episode, we study the spatial pattern of failures to converge. We find that basis fell as distance from delivery location increased and remained tightly connected to basis at the delivery location during the nonconvergence episodes. This finding is uniform throughout the delivery zone. We conclude that nonconvergence did not affect the economic relationship between delivery and nondelivery locations’ spot prices but only affected the connection between futures prices and spot prices.

Suggested Citation

  • Karali, Berna & McNew, Kevin & Thurman, Walter N., 2018. "Price Discovery and the Basis Effects of Failures to Converge in Soft RedWinter Wheat Futures Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(1), January.
    • Handle: RePEc:ags:jlaare:267606
    DOI: 10.22004/ag.econ.267606
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    Cited by:

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    3. Zhige Wu & Alex Maynard & Alfons Weersink & Getu Hailu, 2018. "Asymmetric spot‐futures price adjustments in grain markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(12), pages 1549-1564, December.
    4. Anton Bekkerman & Mykel Taylor, 2020. "The Role of Spatial Density and Technological Investment on Optimal Pricing Strategies in the Grain Handling Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(1), pages 27-58, August.
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    6. Jasdeep S. Banga & B. Wade Brorsen, 2019. "Profitability of alternative methods of combining the signals from technical trading systems," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 26(1), pages 32-45, January.

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