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Commodity Storage under Backwardation: Does the Working Curve Still Work?

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  • Kishore Joseph
  • Scott H. Irwin
  • Philip Garcia

Abstract

We investigate storage in the presence of backwardation and the existence of the Working curve for Chicago Board of Trade corn, soybeans, and wheat markets and the Kansas City Board of Trade wheat market using 1990–2010 data. Two spread measures—the futures-spot and futures-futures—are matched with deliverable stocks on the first Friday of delivery. To account for grade and location aggregation issues, the futures-spot spreads are measured using the lowest spot bid and highest futures price. Storage in the presence of backwardation is pervasive both in terms of the percentage of observations and the magnitude of the stockholdings. The Working curve emerges most clearly in KCBT wheat and soybeans. Convenience yield is also supported by the negligible holdings of delivery shipping certificates in backwardations. Overall, the results show that the Working curve does indeed still work today. When evaluating policy proposals to deal with heightened price volatility in agricultural markets it is important that models incorporate this well-established relationship.

Suggested Citation

  • Kishore Joseph & Scott H. Irwin & Philip Garcia, 2016. "Commodity Storage under Backwardation: Does the Working Curve Still Work?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(1), pages 152-173.
    • Handle: RePEc:oup:apecpp:v:38:y:2016:i:1:p:152-173.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppv011
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    Cited by:

    1. Athanasios Triantafyllou & George Dotsis & Alexandros Sarris, 2020. "Assessing the Vulnerability to Price Spikes in Agricultural Commodity Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 631-651, September.
    2. Christophe Gouel, 2020. "The Value of Public Information in Storable Commodity Markets: Application to the Soybean Market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 846-865, May.
    3. Adjemian, Michael K. & Bruno, Valentina & Robe, Michel A. & Wallen, Jonathan, 2017. "What Drives Volatility Expectations in Grain and Oilseed Markets?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258452, Agricultural and Applied Economics Association.
    4. Covindassamy, Genevre & Robe, Michel A. & Wallen, Jonathan, 2016. "Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty," IDB Publications (Working Papers) 8588, Inter-American Development Bank.
    5. Fernandes, Vitor M. & Kunda, Eugene L. & Robe, Michel A., 2022. "Corn Futures Deliveries: Why? When? So What?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322061, Agricultural and Applied Economics Association.
    6. Verteramo Chiu, Leslie J. & Tomek, William G., 2017. "Insights from Anticipatory Prices," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258115, Agricultural and Applied Economics Association.

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