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Insights from Anticipatory Prices
Author(s) -
Verteramo Chiu Leslie J.,
Tomek William G.
Publication year - 2018
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/1477-9552.12251
Subject(s) - bushel , futures contract , economics , futures market , supply and demand , work (physics) , financial economics , agricultural economics , market price , convenience yield , term (time) , econometrics , microeconomics , agricultural science , spot contract , environmental science , mechanical engineering , physics , quantum mechanics , acre , engineering
Contemporaneous observations on expected supply and on prices of post‐harvest futures contracts for corn are used to estimate expected demand relationships. These equations are used to estimate the prices of the post‐harvest contracts based on new supply estimates. Each estimate can be compared with a corresponding futures price, i.e. the market forecast. The differences help discern the market expectations about the expected demand for the new crop relative to historical experience, which can help support outlook analyses. We find that in recent years, a 100 million bushel change in the expected supply of corn results in about a 6 cent per bushel negative change in the price of December corn. The discussion also deepens understanding of the term ‘anticipatory prices’ as defined by Holbrook Working in his 1958 work.