IDEAS home Printed from https://ideas.repec.org/p/ags/n13417/285871.html

The Cost of Forward Contracting in CIF NOLA Export Bid Market

Author

Listed:
  • Isbell, Bradley
  • McKenzie, Andy M.
  • Brorsen, B. Wade

Abstract

Price risk management in the grain industry is typically done by hedging with forward contracts and futures contracts. An additional important price discovery and risk management “paper market” also exists in the form of CIF NOLA basis bids, traded through brokers. These bids function similar to traditional forward contracts, however, like a futures market, firms can offset their forward contractual obligations by offsetting positions in a liquid off-exchange paper market. Analysis shows that this liquidity mostly removes the pricing bias commonly found in forward contracting in corn and soybeans, although a small bias still exists in wheat and especially sorghum.

Suggested Citation

  • Isbell, Bradley & McKenzie, Andy M. & Brorsen, B. Wade, 2017. "The Cost of Forward Contracting in CIF NOLA Export Bid Market," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285871, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13417:285871
    DOI: 10.22004/ag.econ.285871
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/285871/files/Isbell_McKenzie_Brorsen_NCCC-134_2017.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.285871?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
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ray D. Nelson, 1985. "Forward and Futures Contracts as Preharvest Commodity Marketing Instruments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 15-23.
    2. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price And Yield Uncertainty," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 18(2), pages 1-8, December.
    3. Miller, Stephen E., 1986. "Forward Contracting Versus Hedging Under Price and Yield Uncertainty," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 18(2), pages 139-146, December.
    4. Townsend, John P. & Brorsen, B. Wade, 2000. "Cost of Forward Contracting Hard Red Winter Wheat," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(1), pages 89-94, April.
    5. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    6. Taylor, Mykel & Tonsor, Glynn & Dhuyvetter, Kevin, 2014. "Structural Change in Forward Contracting Costs for Kansas Wheat," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(2), pages 1-13.
    7. Andrew McKenzie & Matthew Holt, 2002. "Market efficiency in agricultural futures markets," Applied Economics, Taylor & Francis Journals, vol. 34(12), pages 1519-1532.
    8. Karen E. Lewis & Ira J. Altman & Mark R. Manfredo & Dwight R. Sanders, 2015. "Risk Premiums and Forward Basis: Evidence from the Soybean Oil Market," Agribusiness, John Wiley & Sons, Ltd., vol. 31(3), pages 388-398, June.
    9. Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), pages 1-13, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Mohammad Hasan Mobarok & Wyatt Thompson & Theodoros Skevas, 2024. "Sensitivity of the United States crop basis and distribution network to precipitation," Agribusiness, John Wiley & Sons, Ltd., vol. 40(4), pages 908-925, October.
    3. Sandro Steinbach & Xiting Zhuang, 2025. "US agricultural exports and the 2022 Mississippi River drought," Agribusiness, John Wiley & Sons, Ltd., vol. 41(1), pages 289-303, January.
    4. Bradley Isbell & Andrew M. McKenzie & B. Wade Brorsen, 2020. "The cost of forward contracting in the Mississippi barge freight river market," Agribusiness, John Wiley & Sons, Ltd., vol. 36(2), pages 226-241, April.
    5. Kamrud, Gwen & Wilson, William W. & Bullock, David W., 2023. "Logistics competition between the U.S. and Brazil for soybean shipments to China: An optimized Monte Carlo simulation approach," Journal of Commodity Markets, Elsevier, vol. 31(C).

    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. Bradley Isbell & Andrew M. McKenzie & B. Wade Brorsen, 2020. "The cost of forward contracting in the Mississippi barge freight river market," Agribusiness, John Wiley & Sons, Ltd., vol. 36(2), pages 226-241, April.
    2. Xiaoli L. Etienne & Mindy L. Mallory & Scott H. Irwin, 2017. "Estimating the cost of pre‐harvest forward contracting corn and soybeans in Illinois before and after 2007," Agribusiness, John Wiley & Sons, Ltd., vol. 33(3), pages 358-377, June.
    3. T. P. Zacharias & D. A. Zaunbrecher & H. D. Traylor & B. E. McManus, 1987. "An analysis of preharvest soybean marketing strategies in louisiana using forward and futures contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 3(4), pages 413-426.
    4. Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Stanton, John & Hoque, Zohurul, 2007. "A Multi-Disciplinary Approach For Determining Adoption Of Agricultural Price Risk Management Strategies," 81st Annual Conference, April 2-4, 2007, Reading University, UK 7985, Agricultural Economics Society.
    5. You‐How Go & Wee‐Yeap Lau, 2023. "What do we know about informational efficiency? Three puzzles and the new direction forward," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1489-1525, September.
    6. Asplund, Nathan M. & Forster, D. Lynn & Stout, Thomas T., "undated". "Participation By Farmers In Forward Contracting And Hedging," 1989 Annual Meeting, July 30-August 2, Baton Rouge, Louisiana 270516, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Stringer, Chris & Sanders, Dwight, 2006. "Forward Contracting Costs for Illinois Corn and Soybeans: Implications for Producer Pricing Strategies," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2006, pages 1-8.
    8. Jebabli, Ikram & Roubaud, David, 2018. "Time-varying efficiency in food and energy markets: Evidence and implications," Economic Modelling, Elsevier, vol. 70(C), pages 97-114.
    9. Heifner, Richard G. & Wright, Bruce H., 1989. "Potentials for Substituting Farmers' Use of Futures and Options for Farm Programs," Agricultural Economic Reports 308136, United States Department of Agriculture, Economic Research Service.
    10. Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Stanton, John, "undated". "A mixed-method approach for determining the risk and complexity farmers associate with using forward contracts," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 42305, Agricultural Economics Society.
    11. Jackson, Elizabeth & Quaddus, Mohammed & Islam, Nazrul & Hoque, Zohurul & Stanton, John, 2006. "Selling raw wool by forward contract: A qualitative analysis of the pros and cons," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139793, Australian Agricultural and Resource Economics Society.
    12. Good, Darrel L. & Irwin, Scott H. & Martines-Filho, Joao Gomes & Hagedorn, Lewis A., 2005. "The Pricing Performance of Market Advisory Services in Corn and Soybeans over 1995-2003," AgMAS Project Research Reports 14775, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    13. Taylor, Mykel & Tonsor, Glynn & Dhuyvetter, Kevin, 2014. "Structural Change in Forward Contracting Costs for Kansas Wheat," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(2), pages 1-13.
    14. Mr. Shaun K. Roache, 2008. "Commodities and the Market Price of Risk," IMF Working Papers 2008/221, International Monetary Fund.
    15. Robert Jarrow, 2010. "Convenience yields," Review of Derivatives Research, Springer, vol. 13(1), pages 25-43, April.
    16. Mauro Boianovsky, 2004. "The IS-LM Model and the Liquidity Trap Concept: From Hicks to Krugman," History of Political Economy, Duke University Press, vol. 36(5), pages 92-126, Supplemen.
    17. Guillermo Llorente & Jiang Wang, 2020. "Trading and information in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1231-1263, August.
    18. Sung Je Byun, 2017. "Speculation in Commodity Futures Markets, Inventories and the Price of Crude Oil," The Energy Journal, , vol. 38(5), pages 93-113, September.
    19. Assia Elgouacem, 2018. "Essays on investment and saving [Essais sur l’investissement et l’épargne]," SciencePo Working papers tel-03419405, HAL.
    20. Prehn, Sören & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "The impact of long-only index funds on price discovery and market performance in agricultural futures markets," IAMO Discussion Papers 169081, Institute of Agricultural Development in Transition Economies (IAMO).

    More about this item

    Keywords

    ;

    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:ags:n13417:285871. 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: AgEcon Search (email available below). General contact details of provider: http://www.farmdoc.illinois.edu/nccc134/ .

    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.