An annual simultaneous equation econometric model of U.S. corn and soybean cash and futures markets

The major purpose of this research is to develop an econometric model that quantifies the interrelationships among the economic forces and policy instruments affecting corn and soybean sectors in the U.S. This study has taken into account the role of future price and emphasized the essential interdependence of cash, futures and storage markets;The structural econometric model contains 29 equations, of which 19 are used to explain behavioral relationships. The model is estimated over the crop years 1961/62 to 1980/81 by using autoregressive three stage least squares (A3SLS). Overall the estimated relationships appear consistent with a priori theory. The model validation was performed by dynamic simulation via the Gauss-Seidel algorithm. This estimated corn-soybean model has generally provided a reasonable structure which was reflected in the simultaneous system;The results of the empirical model support three main hypotheses. First, futures price and cash-futures price differential could be treated as endogenous variables in the integrated corn-soybean model. Second, corn and soybeans compete for storage utilization. Finally, corn and soybean prices tend to move together as they reflect the changing market environment. Corn and soybean markets should not be isolated from each other;The model was also used to examine the effects of changes in selected exogenous variables on the historical operation of the U.S. corn and soybean markets. Short-run multipliers, long-run multipliers and the time length for adjustment towards a new equilibrium were estimated. The results indicate that some endogenous variables are more stable than others and move faster toward new equilibrium levels.