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The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: the Case of Corn and Wheat

Author

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  • Guillermo Benavides Perales

    (Banco de Mexico)

Abstract

Using a restricted version of the BEKK model it is tested an implication of the theory of storage that supply-and-demand fundamentals affect the price dynamics of agricultural commodities. The commodities under analysis are corn and wheat. An interest-storage-adjusted-spread was used as a proxy variable for supply-and-demand fundamentals to test the aforementioned implication for both commodities. It is also tested the Samuelson hypothesis that spot prices have higher volatility than futures prices. It is found that the interest-storage-adjusted-spread has had a statistically significant positive influence on the spot and futures returns for both commodities. Likewise, the results also show that spot price returns have higher volatility compared to futures price returns which is consistent with the Samuelson hypothesis. The results of the aforementioned tests are consistent with both theories and with the existing literature related to commodity futures.

Suggested Citation

  • Guillermo Benavides Perales, 2010. "The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: the Case of Corn and Wheat," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 1-22, May.
    • Handle: RePEc:ere:journl:v:xxix:y:2010:i:1:p:1-22
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    File URL: http://www.economia.uanl.mx/revistaensayos/xxix/1/benavides-the-theory-of-storage.pdf
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    References listed on IDEAS

    as
    1. Chan, Kalok & Chan, K C & Karolyi, G Andrew, 1991. "Intraday Volatility in the Stock Index and Stock Index Futures Markets," The Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 657-684.
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    Cited by:

    1. Jean-Francois Carpantier, 2010. "Commodities inventory effect," Working Papers hal-01821158, HAL.
    2. Vorotnikova, Ekaterina, 2016. "Optimal Storage Capacity Allocation in Grain Merchandizing," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230128, Southern Agricultural Economics Association.
    3. Katunze, Miriam & Kuteesa, Annette & Mujumbi, Theresa & Mahebe, Denis, 2017. "Uganda Warehousing Receipt System: Improving Market Competitiveness and Service Delivery," Research Series 260026, Economic Policy Research Centre (EPRC).
    4. CARPANTIER, Jean-François & DUFAYS, Arnaud, 2012. "Commodities volatility and the theory of storage," LIDAM Discussion Papers CORE 2012037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Agricultural commodities; BEKK model; multivariate GARCH; Samuelson hypothesis; theory of storage;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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