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Milk Price Volatility and its Determinants

Author

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  • Dong, Fengxia
  • Du, Xiaodong
  • Gould, Brian W.

Abstract

The classified pricing of fluid milk under the Federal Milk Marketing Orders (FMMO) system combined with the cash settlement feature of Class IIII milk futures contracts generate a unique volatility pattern of these futures markets in the sense that the volatility gradually decreases as the USDA price announcement dates approaching in the month. Focusing on the evolution of volatility in Class III milk futures market, this study quantifies the relative importance of a set of factors driving milk price variation. While volatilities in both corn futures market and financial market Granger-cause the milk price volatility, the impact of financial market is more persistent. Besides embedded seasonality, market demand and supply conditions in the dairy market, cheese in this case, as well as changes in the U.S. exchange rates are found to have positive and statistically significant impacts on milk price volatility. While speculation positively affects milk futures markets, the effect was found insignificant.

Suggested Citation

  • Dong, Fengxia & Du, Xiaodong & Gould, Brian W., 2011. "Milk Price Volatility and its Determinants," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103617, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103617
    DOI: 10.22004/ag.econ.103617
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    Cited by:

    1. Alberto Criscuolo & Ifeyinwa Uchenna Onugha & Gonzalo Varela, 2014. "Oriental Republic of Uruguay," World Bank Publications - Reports 30469, The World Bank Group.
    2. Figiel, Szczepan & Hamulczuk, Mariusz & Klimkowski, Cezary, 2012. "Price volatility and accuracy of price risk measurement depending on methods and data aggregation: The case of wheat prices in the EU countries," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122549, European Association of Agricultural Economists.

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    Keywords

    Agricultural and Food Policy;

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