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Commodity Storage under Backwardation: Does the Working Curve Still Work?

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  • Joseph, Kishore
  • Irwin, Scott H.
  • Garcia, Philip

Abstract

We investigate storage in the presence of backwardation and the existence of the Working curve for CBOT corn, soybeans, and wheat markets and the KCBOT wheat market using recent data, 1990-2010. Incorporating Telser’s concept of the cost of carry, we employ two measures of the spread—the percent of full carry for futures-futures and futures-spot (maximum) spreads which are adjusted for interest and storage rates. Both spreads are calculated relative to the next nearby futures contract and are matched with closest weekly deliverable stock information available at the delivery locations for the contracts. Our findings indicate that storage at a loss is pervasive both in terms of the percent of observations that exhibited storage at a loss, and the magnitude of the stockholdings for those observations. The evidence for the importance of convenience yield in the Working curve is a little less systematic, with strongest support emerging in the KCBOT wheat market, CBOT wheat and corn in Toledo/Maumee, corn in Chicago, and soybeans at almost all locations.

Suggested Citation

  • Joseph, Kishore & Irwin, Scott H. & Garcia, Philip, "undated". "Commodity Storage under Backwardation: Does the Working Curve Still Work?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103888, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103888
    DOI: 10.22004/ag.econ.103888
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    Cited by:

    1. Athanasios Triantafyllou & George Dotsis & Alexandros Sarris, 2020. "Assessing the Vulnerability to Price Spikes in Agricultural Commodity Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 631-651, September.
    2. Fernandes, Vitor M. & Kunda, Eugene L. & Robe, Michel A., 2022. "Corn Futures Deliveries: Why? When? So What?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322061, Agricultural and Applied Economics Association.
    3. Christophe Gouel, 2020. "The Value of Public Information in Storable Commodity Markets: Application to the Soybean Market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 846-865, May.
    4. Verteramo Chiu, Leslie J. & Tomek, William G., 2017. "Insights from Anticipatory Prices," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258115, Agricultural and Applied Economics Association.
    5. Adjemian, Michael K. & Bruno, Valentina & Robe, Michel A. & Wallen, Jonathan, 2017. "What Drives Volatility Expectations in Grain and Oilseed Markets?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258452, Agricultural and Applied Economics Association.
    6. Covindassamy, Genevre & Robe, Michel A. & Wallen, Jonathan, 2016. "Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty," IDB Publications (Working Papers) 8588, Inter-American Development Bank.

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    Keywords

    Agribusiness; Demand and Price Analysis;

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