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Price Discovery in the U.S. Milled Rice Markets using a Cluster Analysis and Tournament

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  • Kim, Man-Keun
  • Tejeda, Hernan
  • Wright, Jeffrey

Abstract

A major aspect concerning US rice producers and milling industry has to do with price transmission and the price discovery process among domestic milled rice markets and the international rice market. The paper investigates the dynamic relationships between the US domestic and international rice prices and determines the price discovery process using the vector error correction model (ECM) and the tournament approach using a cluster analysis. Results determine that Arkansas medium grain and California short grain are milled rice price reference or leaders in the U.S. We compare the speed of adjustment coefficients from ECM and find that California short grain has a slight edge over Arkansas medium though this lead may be rather insignificant. Two markets contribute equally in the price discovery process. We test both Arkansas medium and California short against Thai 5% rice export price, a frequent reference of international rice price. Result indicates that Thai 5% slightly leads Arkansas medium but is mildly led by California short. The US market and Thai 5% contribute equally in the price discovery in the international market. Results indicate differences from prior findings that the US rice market is segregated from Asian/international market.

Suggested Citation

  • Kim, Man-Keun & Tejeda, Hernan & Wright, Jeffrey, 2016. "Price Discovery in the U.S. Milled Rice Markets using a Cluster Analysis and Tournament," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235725, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:235725
    DOI: 10.22004/ag.econ.235725
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    File URL: http://ageconsearch.umn.edu/record/235725/files/Kim_Tejeda_Wright_Rice%20Price%20Discovery%20Tournament_aaea2016.pdf
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    References listed on IDEAS

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    1. Theissen, Erik, 2002. "Price discovery in floor and screen trading systems," Journal of Empirical Finance, Elsevier, vol. 9(4), pages 455-474, November.
    2. Arnade, Carlos & Hoffman, Linwood, 2015. "The Impact Of Price Variability On Cash/Futures Market Relationships: Implications For Market Efficiency And Price Discovery," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 47(4), pages 539-559, November.
    3. Kim, Man-Keun & Tejeda, Hernan & Yu, T. Edward, 2016. "Dynamic and Spatial Relationships in US Rice Markets," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229784, Southern Agricultural Economics Association.
    4. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
    5. Minot, Nicholas, 2011. "Transmission of world food price changes to markets in Sub-Saharan Africa:," IFPRI discussion papers 1059, International Food Policy Research Institute (IFPRI).
    6. Param Silvapulle & Sisira Jayasuriya, 1994. "Testing For Philippines Rice Market Integration: A Multiple Cointegration Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(3), pages 369-380, September.
    7. Taylor, Earl L. & Bessler, David A. & Waller, Mark L. & Rister, M. Edward, 1996. "Dynamic relationships between US and Thai rice prices," Agricultural Economics, Blackwell, vol. 14(2), pages 123-133, July.
    8. Thomas V. Schwarz & Andrew C. Szakmary, 1994. "Price discovery in petroleum markets: Arbitrage, cointegration, and the time interval of analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(2), pages 147-167, April.
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    Keywords

    Demand and Price Analysis;

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