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Price Discovery in Private Cash Forward Markets - The Case of Lumber


  • Sanders, Dwight R.
  • Manfredo, Mark R.


Cash forward contracting is a common, and often preferred, means of managing price risk for agribusinesses. Despite this, little is known about the performance of cash forward markets, in particular the role they play in price discovery. The lumber market provides a unique case for examining this issue. The Bloch Lumber Company maintains an active cash forward market for many lumber products, and publishes benchmark forward prices on their website and disseminates these prices to data vendors. Focusing on 2x4 random lengths lumber and 7/16 oriented strand board, this research examines the lead-lag relationships between the three-month forward prices published by Bloch Lumber and representative spot prices. Results suggest that at least for 2x4 random lengths lumber, the forward prices published by Bloch Lumber lead the spot price. However, spot prices do not lead the forward prices for 2x4 random lengths lumber, but do for oriented strand board. While these results suggest that the Bloch Lumber forward cash prices are contributing to price discovery, the dominant market for price discovery may be an existing spot or futures market.

Suggested Citation

  • Sanders, Dwight R. & Manfredo, Mark R., 2005. "Price Discovery in Private Cash Forward Markets - The Case of Lumber," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19049, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:ncrfiv:19049
    DOI: 10.22004/ag.econ.19049

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    1. He, Dequan & Holt, Matthew T., 2004. "Efficiency Of Forest Commodity Futures Markets," 2004 Annual meeting, August 1-4, Denver, CO 20344, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Changyou Sun & Daowei Zhang, 2001. "Assessing the Financial Performance of Forestry-Related Investment Vehicles: Capital Asset Pricing Model vs. Arbitrage Pricing Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 617-628.
    3. Yulia V. Veld‐Merkoulova & Frans A. de Roon, 2003. "Hedging long‐term commodity risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(2), pages 109-133, February.
    4. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
    5. T. Randall Fortenbery & Hector O. Zapata, 1997. "An evaluation of price linkages between futures and cash markets for cheddar cheese," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(3), pages 279-301, May.
    6. Rucker, Randal R. & Thurman, Walter N. & Yoder, Jonathan K., 2001. "Estimating The Speed Of Market Reaction To News: Market Events And Lumber Futures Prices," Reports 29152, North Carolina State University, Department of Agricultural and Resource Economics.
    7. Sanders, Dwight R. & Manfredo, Mark R., 2002. "Usda Production Forecasts For Pork, Beef, And Broilers: An Evaluation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(1), pages 1-14, July.
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