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Effects of Price Volatility and Surging South American Soybean Production on Short-run Soybean Basis Dynamics

Author

Listed:
  • Zhang, Rui (Carolyn)
  • Houston, Jack E.

Abstract

This study investigates the effects of South American production (SAP) and futures volatility on the soybean price dynamics in terms of their effects on the basis. The results of the econometric model showed that both South American production and futures volatility of the nearby contract have negative effects on the basis though in the forecast model, lagged values of these two factors failed to predict basis change in the future. If information about the change of the expected SAP or futures volatility is available, then the model can predict the changes in basis. This information would be helpful for hedgers to decide the time to lift their hedge.

Suggested Citation

  • Zhang, Rui (Carolyn) & Houston, Jack E., 2005. "Effects of Price Volatility and Surging South American Soybean Production on Short-run Soybean Basis Dynamics," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19038, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:ncrfiv:19038
    DOI: 10.22004/ag.econ.19038
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    File URL: http://ageconsearch.umn.edu/record/19038/files/cp05zh01.pdf
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    References listed on IDEAS

    as
    1. Taylor, Mykel R. & Dhuyvetter, Kevin C. & Kastens, Terry L., 2004. "Incorporating Current Information Into Historical-Average-Based Forecasts To Improve Crop Price Basis Forecasts," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19022, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Darren L. Frechette, 1997. "The Dynamics of Convenience and the Brazilian Soybean Boom," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1108-1118.
    3. Jiang, Bingrong, 1997. "Corn and soybean basis behavior and forecasting: fundamental and alternative approaches," ISU General Staff Papers 1997010108000013213, Iowa State University, Department of Economics.
    4. Ng, Victor K & Pirrong, Stephen Craig, 1994. "Fundamentals and Volatility: Storage, Spreads, and the Dynamics of Metals Prices," The Journal of Business, University of Chicago Press, vol. 67(2), pages 203-230, April.
    5. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
    6. Hayenga, Marvin L. & Jiang, Bingrong, 1997. "Corn and Soybean Basis Behavior and Forecasting: Fundamental and Alternative Approaches," Staff General Research Papers Archive 10400, Iowa State University, Department of Economics.
    7. David Kenyon & Kenneth Kling & Jim Jordan & William Seale & Nancy McCabe, 1987. "Factors affecting agricultural futures price variance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 7(1), pages 73-91, February.
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    Keywords

    Crop Production/Industries; Marketing;

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