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Information‐rich wheat markets in the early days of COVID‐19

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  • James Vercammen

Abstract

This paper uses the information implicit in commodity futures and options prices to infer market beliefs about the impact of early‐stages COVID‐19 on commodity market fundamentals. The particular commodity examined is soft red winter (SRW) wheat, and the timeframe is early February to late March 2020. The analysis highlights various adjustments in the cash and futures price of SRW wheat in light of surging short‐run demand from consumer hoarding of staple food products, and a weakening long‐run market from growing wheat stocks and an emerging global recession. This split is causing the forward curve to flatten and basis levels to invert. The change over time in the price of options on wheat futures reveals increased price volatility in response to growing uncertainty about the COVID‐19 impacts. Similarly, changes in the skewness of the option's volatility smile illustrate a shift in traders’ perception about risk in the right versus left tail of the price distribution. Cet article utilise les informations implicites dans les prix à terme et les options des matières premières pour déduire les croyances du marché quant à l'impact de Covid‐19 a ses débuts sur les fondamentaux du marché des matières premières. Le produit particulier examiné est le blé tendre rouge d'hiver (BRH), et le délai est de début février à fin mars 2020. L'analyse met en évidence divers ajustements du prix au comptant et à terme du blé BRH à la lumière de la demande à court terme croissante des consommateurs suivant le stockage de produits alimentaires de base et un marché à long terme qui s'affaiblit en raison de la croissance des stocks de blé et d'une récession mondiale émergente. Cette division entraîne un aplatissement de la courbe avant et une inversion des niveaux de base. L'évolution dans le temps du prix des options sur les contrats à terme sur le blé révèle une volatilité accrue des prix en réponse à l'incertitude croissante concernant les effets de Covid‐19. De même, les changements dans l'asymétrie de volatilité sourire de l'option illustrent un changement dans la perception des commerçants sur le risque dans la queue droite de la distribution de prix relativement à la gauche.

Suggested Citation

  • James Vercammen, 2020. "Information‐rich wheat markets in the early days of COVID‐19," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 68(2), pages 177-184, June.
  • Handle: RePEc:bla:canjag:v:68:y:2020:i:2:p:177-184
    DOI: 10.1111/cjag.12229
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    Cited by:

    1. Rubbaniy, Ghulame & Khalid, Ali Awais & Syriopoulos, Konstantinos & Samitas, Aristeidis, 2022. "Safe-haven properties of soft commodities during times of Covid-19," Journal of Commodity Markets, Elsevier, vol. 27(C).
    2. Alan P. Ker & Ryan Cardwell, 2020. "Introduction to the special issue on COVID‐19 and the Canadian agriculture and food sectors: Thoughts from the pandemic onset," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 68(2), pages 139-142, June.
    3. Samba Diop & Simplice A. Asongu, 2023. "The Covid-19 Pandemic and the New Poor in Africa: The Straw That Broke the Camel’s Back," Forum for Social Economics, Taylor & Francis Journals, vol. 52(2), pages 143-154, April.
    4. Chowdhury, Mohammad Ashraful Ferdous & Meo, Muhammad Saeed & Aloui, Chaker, 2021. "How world uncertainties and global pandemics destabilized food, energy and stock markets? Fresh evidence from quantile on quantile regressions," International Review of Financial Analysis, Elsevier, vol. 76(C).
    5. Samba Diop & Simplice A. Asongu, 2020. "The Covid-19 Pandemic and the New Poor in Africa: the Straw that Broke the Camel’s Back," Research Africa Network Working Papers 20/038, Research Africa Network (RAN).
    6. Derek Gerald Brewin, 2021. "The impact of COVID‐19 on the grains and oilseeds sector: 12 months later," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(2), pages 197-202, June.
    7. Jianqing Ruan & Qingwen Cai & Songqing Jin, 2021. "Impact of COVID‐19 and Nationwide Lockdowns on Vegetable Prices: Evidence from Wholesale Markets in China," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1574-1594, October.
    8. Farid, Saqib & Naeem, Muhammad Abubakr & Paltrinieri, Andrea & Nepal, Rabindra, 2022. "Impact of COVID-19 on the quantile connectedness between energy, metals and agriculture commodities," Energy Economics, Elsevier, vol. 109(C).
    9. Margarida Rodrigues & Mário Franco & Rui Silva, 2020. "COVID-19 and Disruption in Management and Education Academics: Bibliometric Mapping and Analysis," Sustainability, MDPI, vol. 12(18), pages 1-25, September.
    10. Hu, Min & Zhang, Dayong & Ji, Qiang & Wei, Lijian, 2020. "Macro factors and the realized volatility of commodities: A dynamic network analysis," Resources Policy, Elsevier, vol. 68(C).
    11. Lotanna E Emediegwu & Obianuju O Nnadozie, 2023. "On the effects of COVID-19 on food prices in India: a time-varying approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(2), pages 232-249.

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