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Volatility in US dairy futures markets

Author

Listed:
  • Fan, Zaifeng
  • Jump, Jeff
  • Tse, Yiuman
  • Yu, Linda

Abstract

US dairy futures markets of Class III milk, butter, cheese, and dry whey exhibit unique volatility patterns under the Federal Milk Marketing Order pricing system. We find that dairy volatilities have a relatively low connectedness among themselves and the overall commodity market. We develop a price information uncertainty measure to investigate dairy markets’ response to government-released information. Dairy futures markets respond to government-released information with increased trading activity. The price information uncertainty measure has a strong positive impact on price volatility across all dairy commodities. We provide evidence that the COVID-19 pandemic increases volatility in dairy commodities. The pandemic also significantly reduces the impact of information uncertainty on volatility.

Suggested Citation

  • Fan, Zaifeng & Jump, Jeff & Tse, Yiuman & Yu, Linda, 2023. "Volatility in US dairy futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    • Handle: RePEc:eee:jocoma:v:29:y:2023:i:c:s2405851322000666
    DOI: 10.1016/j.jcomm.2022.100309
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    More about this item

    Keywords

    Dairy commodity futures; FMMO pricing; Information uncertainty; USDA announcements; Volatility;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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