SABIIA - Sistema Aberto e Integrado de Informação em Agricultura (Sabiia)

Recent research has provided mixed results regarding the presence of a time-varying risk premium in agricultural futures markets. In this paper we test for the presence of a time-varying risk premium and market efficiency focusing on the properties of the underlying data. Specifically, we examine the same markets and period used by McKenzie and Holt (2002) and extend the analysis through 2004. Our results show that accounting for the structural break in the early seventies plays a key role in the findings. In contrast to McKenzie and Holt, we find no evidence of time-varying risk premium in the four commodities analyzed. The corn market appears to be (weak form) efficient. Hogs, live cattle, and soybean meal futures contracts show evidence of inefficiency,...

Cash Settlement of Lean Hog Futures Contracts Reexamined

Palavras-chave: Marketing.

Ano: 2005

URL: http://purl.umn.edu/19051

Frank, Julieta; Gomez, Miguel I.; Kunda, Eugene L.; Garcia, Philip.

In 1997 the Chicago Mercantile Exchange replaced its live hog futures contract with a cash settlement mechanism based on a Lean Hog Index. Although cash settlement was expected to increase the use of the contract as a hedging tool, producers and packers are concerned that convergence between cash and futures prices is not occurring and that the volatility of the lean hog contract basis has increased in recent years. The purpose of the paper is to reexamine cash settlement of lean hog futures contracts as a hedging tool, focusing on basis behavior and management of basis risk. We also investigate alternative hedging instruments that take into account location differences between regional cash prices and the CME lean hog index. Our results indicate that...

To What Surprises Do Hog Futures Markets Respond?

Palavras-chave: Basis behavior; Cash settlement; Ex-ante basis risk; Lean hogs futures contract; Regional basis; Agricultural Finance.

Ano: 2008

URL: http://purl.umn.edu/37611

Frank, Julieta; Garcia, Philip; Irwin, Scott H..

We reassess the effect of new information in the Hogs and Pigs Reports (HPR) focusing on announcements’ rationality and alternative surprises. HPR announcements are irrational estimates of final estimates, and market expectations are irrational estimates of HPR numbers. Using the market’s best forecast and incorporating final estimates, we modify conventional information measures. Despite differences as large as 33 cents/cwt in price response, findings suggest there is little to differentiate among surprise measures. Regardless, the message that HPR provides new information to the market is strongly supported. On balance, marketing (breeding) information has a larger effect on short-term (long-term) price changes.

Tipo: Journal Article

Palavras-chave: HPR; New information; Rationality; Two-limit tobit; USDA announcements; Agribusiness; Agricultural Finance; C24; Q13.

Ano: 2008

URL: http://purl.umn.edu/45046

Market Depth in Lean Hog and Live Cattle Futures Markets

Liquidity costs in futures markets are not observed directly because bids and offers occur in an open outcry pit and are not recorded. Traditional estimation of these costs has focused on bidask spreads using transaction prices. However, the bid-ask spread only captures the tightness of the market price. As the volume increases measures of market depth which identify how the order flow moves prices become important information. We estimate market depth for lean hogs and live cattle markets using a Bayesian MCMC method to estimate unobserved data. While the markets are highly liquid, our results show that cost- and risk-reducing strategies may exist. Liquidity costs are highest when larger volumes are traded at distant contracts. For hogs the market becomes...

Complex Choices: Producers Risk Management Strategies

Palavras-chave: Bayesian MCMC; Lean hog futures; Liquidity cost; Live cattle futures; Market depth; Market microstructure; Agricultural Finance.

Ano: 2008

URL: http://purl.umn.edu/37613

Pennings, Joost M.E.; Isengildina, Olga; Irwin, Scott H.; Good, Darrel L.; Garcia, Philip; Frank, Julieta; Kuiper, W. Erno.

Producers have a wide variety of risk management instruments available. How do producers make a choice of risk management instruments? Using the recently developed choice bracketing framework, we examine what risk management strategies producers use and identify the factors that drive their risk management decisions. Our results identify that producers use a wide variety of combinations of risk management instruments and that they bracket their choices into sets of alternative risk management instruments. Using multinomial logit models to estimate the choice process provides information about the factors that influence producers' decision making. The results show that broad bracketing producers use different risk management instruments than narrow...

To What Surprises Do Hog Futures Markets Respond?

Palavras-chave: Risk and Uncertainty.

Ano: 2005

URL: http://purl.umn.edu/19550

Frank, Julieta; Garcia, Philip; Irwin, Scott H..

We re-assess the effect of new information contained in the Hogs and Pigs Reports (HPR) focusing on the rationality of the announcements. We find that HPR preliminary numbers are irrational estimates of the final numbers and market expectations before the announcements are also irrational estimates of HPR numbers. Based on these results we modify the conventional measure of new information entering into the market (i.e., announcement - market expectation), and incorporate final estimates and the market’s best forecast into the analysis. Results show modest statistical differences between the conventional and modified measures of surprise; however some economic differences, as large as 27 cents/cwt, emerged. We also find that, as expected, marketings...

Impact of Free Trade Agreements on the Colombian Beef Sector

Palavras-chave: USDA announcements; HPR; Rationality; New information; Two-limit tobit.

Ano: 2007

URL: http://purl.umn.edu/37573

Gomez, Miguel I.; Frank, Julieta; Parra, Tatiana.

Colombia negotiated bilateral Trade Agreements (TAs) with the United States and with the MERCOSUR region (Argentina, Brazil, Paraguay, and Uruguay). Colombian cattle and beef interest groups argue that TAs hurt the local beef supply chain. We employ a partial equilibrium framework to assess the impact of these TAs on the welfare of cattle producers, beef marketers and meat consumers in Colombia. Our results suggest that with free imports of chicken parts from the U.S, beef consumption and retail prices of beef both decrease and the derived demand and prices of fed cattle decrease. With beef imports from the MERCOSUR region, domestic beef prices and beef production fall, but total beef consumption increases. Overall, consumers are better off and there are...

Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets

Palavras-chave: Beef; Colombia; Partial equilibrium; Trade liberalization; International Relations/Trade; F14; D60; Q17.

Ano: 2010

URL: http://purl.umn.edu/61670

Understanding the determinants of liquidity costs in agricultural futures markets is hampered by a need to use proxies for the bid-ask spread which are often biased, and by a failure to account for a jointly determined micro-market structure. We estimate liquidity costs and its determinants for the live cattle and hog futures markets using alternative liquidity cost estimators, intraday prices and micro-market information. Volume and volatility are simultaneously determined and significantly related to the bid-ask spread. Daily volume is negatively related to the spread while volatility and volume per transaction display positive relationships. Electronic trading has a significant competitive effect on liquidity costs, particularly in the live cattle...

Estimating Liquidity Costs in Agricultural Futures Markets using Bayesian Methods

Palavras-chave: Bayesian estimation; Bid-ask spread determinants; Liquidity cost; Livestock Production/Industries; Marketing.

Ano: 2009

URL: http://purl.umn.edu/49575

Estimation of liquidity costs in futures markets is challenging because bid-ask spreads are usually not observed. Several estimators of liquidity costs exist that use transaction data, but there is little agreement on their relative accuracy and usefulness, and their performance has been questioned. We use a Bayesian method proposed by Hasbrouck which possesses conceptually desirable properties to estimate liquidity costs of six agricultural future contracts. The method builds on Roll's model and uses Markov Chain Monte Carlo estimation. Our Bayesian estimates are lower than more traditional estimates and as anticipated decrease even more when more realistic assumptions such as discreteness are incorporated. The findings demonstrate the need for further...

Measuring Liquidity Costs in Agricultural Futures Markets

Palavras-chave: Marketing.

Ano: 2006

URL: http://purl.umn.edu/21331

Estimation of liquidity costs in agricultural futures markets is challenging because bid-ask spreads are usually not observed. Spread estimators that use transaction data are available, but little agreement exists on their relative accuracy and performance. We evaluate four conventional and a recently proposed Bayesian estimators using simulated data based on Roll’s standard liquidity cost model. The Bayesian estimator tracks Roll’s model relatively well except when the level of noise in the market is large. We derive an improved estimator that seems to have a higher performance even under high levels of noise which is common in agricultural futures markets. We also compute liquidity costs using data for hogs and cattle futures contracts trading on the...