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Dynamic Interrelationships in Hard Wheat Basis Markets

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  • William W. Wilson
  • Dragan Miljkovic

Abstract

The basis values for hard red spring wheat (HRS) have escalated radically, experienced extraordinary levels of volatility (risk), have been subject to a squeeze during 2008, and all these have important implications for market participants. These observations are particularly important to marketers in the Northern Great Plains in the United States, as well as for Canadian marketers. The purpose of this paper is to develop a model to explore the dynamic relationships and interdependencies among terminal market basis values for milling quality higher-protein wheat. Specifically, we seek to identify factors impacting basis values for 13, 14, and 15% protein HRS wheat in addition to the intermakret wheat spread between Minneapolis and Kansas City wheat futures. We specify a vector autoregression (VAR) model to explore these relationships. Exogenous structural variables are specified in addition to dynamic inter-relationships including seasonal variability, inter-temporal variability and dynamic interdependencies among these markets and relationships. The results of interest are that: 1) basis values for these wheat markets been trending up, and have become more volatile; 2) factors impacting this variability is primarily the protein level in HRS, and production of HRW and Canadian (on high protein basis); 3) HRW protein supplies are not significant in the basis equations, but, do have an impact on the interrmarket wheat futures spread; 4) Quality levels.
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Suggested Citation

  • 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.
    • Handle: RePEc:bla:canjag:v:61:y:2013:i:3:p:397-416
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    File URL: http://hdl.handle.net/10.1111/cjag.2013.61.issue-3
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    Cited by:

    1. 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).
    2. 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.
    3. Anton Bekkerman, 2021. "Quality forecasts: Predicting when and how much markets value higher‐protein wheat," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(4), pages 465-490, December.
    4. Bekkerman, Anton & Worley, R. Trey, 2020. "Quality Forecasts: Predicting When and How Much Markets Value Higher Protein Wheat," 2020 Conference, St. Louis, Missouri 309639, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    5. 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).
    6. 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.
    7. Adjemian, Michael K. & Janzen, Joseph & Carter, Colin A. & Smith, Aaron, 2014. "Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement," Economic Research Report 167369, United States Department of Agriculture, Economic Research Service.

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