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Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture

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  • Andrew Coleman

    (Motu Economic and Public Policy Research)

Abstract

Commodities are often stored when the spot price exceeds the future price in a central market. Wright and Williams conjectured that inventories are held in locations far from the central market on these occasions. In these locations the spot price is lower than the price for forward delivery because transport costs are temporarily high. This hypothesis has not been directly tested, because prices for forward delivery are not normally available at non-central locations. This paper uses an example where these prices exist to test the hypothesis. The evidence, from the late nineteenth century corn markets in Chicago and New York, strongly supports the conjecture. Length: 30 pages

Suggested Citation

  • Andrew Coleman, 2008. "Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture," Working Papers 08_13, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:08_13
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    File URL: https://motu-www.motu.org.nz/wpapers/08_13.pdf
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    References listed on IDEAS

    as
    1. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, November.
    2. Andrew Coleman, 2009. "A Model of Spatial Arbitrage with Transport Capacity Constraints and Endogenous Transport Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 42-56.
    3. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    4. Darren L. Frechette & Paul L. Fackler, 1999. "What Causes Commodity Price Backwardation?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 761-771.
    5. Working, Holbrook & Hobe, Adelaide M., 1929. "The Post-Harvest Depression of Wheat Prices," Wheat Studies, Stanford University, Food Research Institute, vol. 6(01), pages 1-40, November.
    6. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024, Elsevier.
    7. Martin Benirschka & James K. Binkley, 1995. "Optimal Storage and Marketing Over Space and Time," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 512-524.
    8. Brennan, Donna & Williams, Jeffrey & Wright, Brian D, 1997. "Convenience Yield without the Convenience: A Spatial-Temporal Interpretation of Storage under Backwardation," Economic Journal, Royal Economic Society, vol. 107(443), pages 1009-1022, July.
    9. George G. Tunell, 1897. "The Diversion of the Flour and Grain Traffic from the Great Lakes to the Railroads," Journal of Political Economy, University of Chicago Press, vol. 5(3), pages 340-340.
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    More about this item

    Keywords

    Inventories; commodity prices; transport costs;
    All these keywords.

    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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