IDEAS home Printed from https://ideas.repec.org/a/bla/ajarec/v67y2023i1p104-117.html
   My bibliography  Save this article

Futures markets and price stabilisation: An analysis of soybeans markets in North America

Author

Listed:
  • Dragan Miljkovic
  • Cole Goetz

Abstract

The objective of this paper was to determine whether the futures markets have a stabilising or destabilising impact on soybean's spot prices in North America. Directed acyclic graphs (DAGs) are used to test for causality between futures prices, spot prices and ending stocks, followed by time series econometric analysis. The DAGs point to the two‐way causal link between futures and spot prices and a lack of a causal link between inventory/stocks and spot price volatility. Time series results, including cointegration, vector error correction, impulse response and variance decomposition analysis, indicate a large impact from futures markets on the level and volatility of soybean spot prices in both the short and long run. These results have potentially important implications, as the impact of commodity price volatility is typically asymmetric across different actors. Farmers, for example, unlike speculators, utilise price risk management (PRM) instruments such as futures markets to mitigate price risks and appear to suffer from intensified volatility precisely because of their use of these instruments. Therefore, additional policies to cope with commodity price volatility, such as direct price controls or mitigation of consequences, can have critical stabilising functions supporting farmers' welfare and regional (rural) development.

Suggested Citation

  • Dragan Miljkovic & Cole Goetz, 2023. "Futures markets and price stabilisation: An analysis of soybeans markets in North America," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(1), pages 104-117, January.
    • Handle: RePEc:bla:ajarec:v:67:y:2023:i:1:p:104-117
    DOI: 10.1111/1467-8489.12504
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-8489.12504
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-8489.12504?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Guido W. Imbens, 2020. "Potential Outcome and Directed Acyclic Graph Approaches to Causality: Relevance for Empirical Practice in Economics," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1129-1179, December.
    2. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    3. Newbery, David M, 1987. "When Do Futures Destabilize Spot Prices?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 291-297, June.
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    6. Goetz, Cole & Miljkovic, Dragan & Barabanov, Nikita, 2021. "New empirical evidence in support of the theory of price volatility of storable commodities under rational expectations in spot and futures markets," Energy Economics, Elsevier, vol. 100(C).
    7. Irwin, Scott H. & Sanders, Dwight R. & Merrin, Robert P., 2009. "Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(2), August.
    8. Morgan, C. W. & Rayner, A. J. & Ennew, C. T., 1994. "Price instability and commodity futures markets," World Development, Elsevier, vol. 22(11), pages 1729-1736, November.
    9. Robert D. Weaver & Aniruddha Banerjee, 1990. "Does futures trading destabilize cash prices? Evidence for U. S. live beef cattle," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(1), pages 41-60, February.
    10. Kawai, Masahiro, 1983. "Price Volatility of Storable Commodities under Rational Expectations in Spot and Futures Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 435-459, June.
    11. Miljkovic, Dragan & Goetz, Cole, 2020. "The effects of futures markets on oil spot price volatility in regional US markets," Applied Energy, Elsevier, vol. 273(C).
    12. Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 261-287, April.
    13. Dimpfl, Thomas & Flad, Michael & Jung, Robert C., 2017. "Price discovery in agricultural commodity markets in the presence of futures speculation," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 50-62.
    14. Hasbrouck, Joel, 1995. "One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
    15. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
    16. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    17. Dragan Miljkovic & Cole Goetz, 2020. "Destabilizing role of futures markets on North American hard red spring wheat spot prices," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 887-897, November.
    18. B. Wade Brorsen & Charles M. Oellermann & Paul L. Farris, 1989. "The live cattle futures market and daily cash price movements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(4), pages 273-282, August.
    19. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    20. William W. Wilson & Dragan Miljkovic, 2013. "Dynamic Interrelationships in Hard Wheat Basis Markets," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 61(3), pages 397-416, September.
    21. Miljkovic, Dragan & Dalbec, Nathan & Zhang, Lei, 2016. "Estimating dynamics of US demand for major fossil fuels," Energy Economics, Elsevier, vol. 55(C), pages 284-291.
    22. David A Bessler & Jian Yang & Metha Wongcharupan, 2003. "Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs," Journal of Regional Science, Wiley Blackwell, vol. 43(1), pages 1-33, February.
    23. Easwaran, R. Salvadi & Ramasundaram, P., 2008. "Whether commodity futures market in agriculture is efficient in price discovery? - An econometric analysis," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 21(Conferenc).
    24. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dragan Miljkovic & Cole Goetz, 2020. "Destabilizing role of futures markets on North American hard red spring wheat spot prices," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 887-897, November.
    2. Goetz, Cole & Miljkovic, Dragan & Barabanov, Nikita, 2021. "New empirical evidence in support of the theory of price volatility of storable commodities under rational expectations in spot and futures markets," Energy Economics, Elsevier, vol. 100(C).
    3. Miljkovic, Dragan & Goetz, Cole, 2020. "The effects of futures markets on oil spot price volatility in regional US markets," Applied Energy, Elsevier, vol. 273(C).
    4. Bley, Jorg, 2009. "European stock market integration: Fact or fiction?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 759-776, December.
    5. N. Groenewold, 2000. "Financial Deregulation and the Relationship Between the Economy and the Share Market in Australia," Economics Discussion / Working Papers 00-10, The University of Western Australia, Department of Economics.
    6. Chen, Pei-Fen & Chien, Mei-Se & Lee, Chien-Chiang, 2011. "Dynamic modeling of regional house price diffusion in Taiwan," Journal of Housing Economics, Elsevier, vol. 20(4), pages 315-332.
    7. Babula, Ronald A. & Bessler, David A. & Reeder, John & Somwaru, Agapi, 2004. "Modeling U.S. Soy-Based Markets with Directed Acyclic Graphs and Time Series Econometrics: Evaluating the U.S. Market Impacts of High Soy Meal Prices," Working Paper ID Series 15885, United States International Trade Commission, Office of Industries.
    8. Lee, Chien-Chiang & Chiu, Yi-Bin, 2011. "Nuclear energy consumption, oil prices, and economic growth: Evidence from highly industrialized countries," Energy Economics, Elsevier, vol. 33(2), pages 236-248, March.
    9. Hernán Enríquez Sierra & Jacobo Campo Robledo & Antonio Avendaño Arosemena, 2015. "Relaciones regionales en los precios de vivienda nueva en Colombia," Revista Ecos de Economía, Universidad EAFIT, vol. 19(40), pages 25-47, June.
    10. repec:ebl:ecbull:v:30:y:2010:i:1:p:558-576 is not listed on IDEAS
    11. Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 245-253, August.
    12. Rashid, Shahidur, 2011. "Intercommodity price transmission and food price policies: An analysis of Ethiopian cereal markets," IFPRI discussion papers 1079, International Food Policy Research Institute (IFPRI).
    13. Yunus, Nafeesa, 2015. "Trends and convergence in global housing markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 100-112.
    14. Chien-Chiang Lee & Chun-Ping Chang, 2006. "The Long-Run Relationship Between Defence Expenditures And Gdp In Taiwan," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(4), pages 361-385.
    15. repec:dau:papers:123456789/4226 is not listed on IDEAS
    16. Imed Drine & Christophe Rault, 2004. "The sources of Real Exchange Fluctuations in Developing Countries : an Econometric Investigation," William Davidson Institute Working Papers Series 2004-653, William Davidson Institute at the University of Michigan.
    17. Paolo Pagnottoni & Thomas Dimpfl, 2019. "Price discovery on Bitcoin markets," Digital Finance, Springer, vol. 1(1), pages 139-161, November.
    18. Xiaojie Xu, 2018. "Cointegration and price discovery in US corn cash and futures markets," Empirical Economics, Springer, vol. 55(4), pages 1889-1923, December.
    19. Kyophilavong, Phouphet & Shahbaz, Muhammad & Kim, Byoungki & OH, Jeong-Soo, 2017. "A note on the electricity-growth nexus in Lao PDR," Renewable and Sustainable Energy Reviews, Elsevier, vol. 77(C), pages 1251-1260.
    20. Bley, Jorg & Chen, Kim Heng, 2006. "Gulf Cooperation Council (GCC) stock markets: The dawn of a new era," Global Finance Journal, Elsevier, vol. 17(1), pages 75-91, September.
    21. Jian Yang & Jin Zhang & David J. Leatham, 2003. "Price and Volatility Transmission in International Wheat Futures," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 37-50, May.
    22. Black, Angela & Fraser, Patricia & Groenewold, Nicolaas, 2003. "How big is the speculative component in Australian share prices?," Journal of Economics and Business, Elsevier, vol. 55(2), pages 177-195.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ajarec:v:67:y:2023:i:1:p:104-117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.