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Commodity futures markets: are they an effective price risk management tool for the European wheat supply chain ?

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  • Revoredo-Giha, C.
  • Zuppiroli, M.

Abstract

The instability of commodity prices and the hypothesis that speculative behaviour was one of its causes has brought renewed interest in futures markets. In this paper, we analyse the European wheat futures markets (feed and milling) and the CBOT’s wheat contract as a comparison, to study their efficiency, hedging effectiveness and whether they were affected during the period of high instability after 2007. Implicitly this is a test of whether the increasing presence of speculation in futures markets have made them divorced from the physical markets, and therefore, not useful for commercial entities aiming to exchange price risk for basis risk.

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Bibliographic Info

Paper provided by Italian Association of Agricultural and Applied Economics (AIEAA) in its series 2013 Second Congress, June 6-7, 2013, Parma, Italy with number 149773.

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Date of creation: Jun 2013
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Handle: RePEc:ags:aiea13:149773

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Related research

Keywords: Futures prices; commodity prices; volatility; wheat; Demand and Price Analysis; Farm Management; International Relations/Trade; G1; G130;

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  1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  2. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
  3. STEVEN C. BLANK & COLIN A. CARTER & JEFFREY McDONALD, 1997. "Is The Market Failing Agricultural Producers Who Wish To Manage Risks?," Contemporary Economic Policy, Western Economic Association International, vol. 15(3), pages 103-112, 07.
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  9. Stein, Jerome L, 1981. "Speculative Price: Economic Welfare and the Idiot of Chance," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 223-32, May.
  10. Castelino, Mark G, 1989. "Basis Volatility: Implications for Hedging," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 12(2), pages 157-72, Summer.
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  12. Lence, Sergio H., 2008. "Do Futures Benefit Farmers?," Staff General Research Papers 12919, Iowa State University, Department of Economics.
  13. Garbade, Kenneth D & Silber, William L, 1983. "Price Movements and Price Discovery in Futures and Cash Markets," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 289-97, May.
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  15. Christopher Gilbert & Wyn Morgan, 2010. "Has food price volatility risen?," Department of Economics Working Papers 1002, Department of Economics, University of Trento, Italia.
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Cited by:
  1. Gianluca Stefani & Marco Tiberti, 2013. "Textbook Estimators of Multiperiod Optimal Hedging Ratios: Methodological Aspects and Application to the European Wheat Market," Working Papers - Economics wp2013_29.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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