Hostname: page-component-848d4c4894-wg55d Total loading time: 0 Render date: 2024-06-01T18:56:58.147Z Has data issue: false hasContentIssue false
  • English
  • Français

Market Inversion in Commodity Futures Prices

Published online by Cambridge University Press:  28 April 2015

Byung-Sam Yoon  and
B. Wade Brorsen
Byung-Sam Yoon
Affiliation:
Korean Futures Association, Stillwater, OK
B. Wade Brorsen
Affiliation:
Jean & Patsy Neustadt Chair, Department of Agricultural Economics, Oklahoma State University, Stillwater, OK
Get access

Abstract

In an inverted market, current prices are higher than future prices and thus the price of storage is negative. Market inversions as measured with futures spreads rarely occur during early months of the crop year. However, market inversions frequently occur across crop years and near the end of the crop year. In the last half of the crop year, market inversions clearly reflect a signal to sell stocks. Too few inversions occur early in the crop year to reach a definitive conclusion for that period. Behavioral finance offers possible explanations of why producers would hold stocks in an inverted market.

Keywords

convenience yieldcost of carrymarket inversionQ13
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 34 , Issue 3 , December 2002 , pp. 459 - 476
Copyright
Copyright © Southern Agricultural Economics Association 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Benirschka, M., and Binkley, J.. “Optimal Storage and Marketing over Space and Time.” American Journal of Agricultural Economics 77(August 1995):512-24.CrossRefGoogle Scholar
Brennan, D., Williams, J., and Wright, B.D.. “Convenience Yield Without the Convenience: A Spatial-Temporal Interpretation of Storage Under Backwardation.” Economic Journal 107(July 1997):1009-22.CrossRefGoogle Scholar
Brennan, M.J. “The Supply of Storage.” American Economic Review 48(1958):50–72.Google Scholar
Brennan, M.J. “The Price of Convenience and the Pricing of Commodity Contingent Claims.” Stochastic Models and Options Values. Lund, D. and Oksendal, B., eds. New York: Elsevier Science Publishers B.V., 1991.Google Scholar
Brorsen, B.W., and Anderson, K.B.. “Implications of Behavioral Finance for Farmer Marketing, Strategy Recommendations.” NCR-134 Conference Proceedings, April 2001. Internet site: http://agecon.lib.umn.edu/cgi-bin/pdf.view.pl?paperid=2862 (Accessed June 2001).Google Scholar
Bureau of Labor Statistics. Electronic data base. Internet site: http://stats.bls.gov/ppi/home.htm (Accessed March 2000).Google Scholar
Chicago Board of Trade. Annual Report of the Board of Trade of the City of Chicago. Chicago, various issues.Google Scholar
Cho, D.W., and McDougall, G.S.. “The Supply of Storage in Energy Futures Markets.” Journal of Futures Markets 10(1990):611-21.CrossRefGoogle Scholar
Deaton, A., and Laroque, G.. “On the Behaviour of Commodity Prices.” Review of Economic Studies 59(1992):1–23.CrossRefGoogle Scholar
Deaton, A., and Laroque, G.. “Competitive Storage and Commodity Price Dynamics.” Journal of Political Economy 104(1996):896–923.CrossRefGoogle Scholar
Eales, J.S., Engel, B.K., Hauser, R.J., and Thompson, S.R.. “Grain Price Expectations of Illinois Farmers and Grain Merchandisers.” American Journal of Agricultural Economics 72(1990):701-8.CrossRefGoogle Scholar
Fama, E.F., and French, K.R.. “Commodity Futures Prices: Some Evidence on Forecast Power, Premiums, and the Theory of Storage.” Journal of Business 60(January 1987):55–74.CrossRefGoogle Scholar
Fama, E.F., and French, K.R.. “Business Cycles and the Behavior of Metal Prices.” Journal of Finance 43(December 1988):1075-93.CrossRefGoogle Scholar
Federal Reserve Bank of St. Louis. U.S. Financial Data. Weekly Issues, 1982-1999.Google Scholar
Frechette, D.L., and Fackler, P.L.. “What Causes Commodity Price Backwardation?” American Journal of Agricultural Econmics 81(November 1999):761-71.CrossRefGoogle Scholar
Gray, R.W., and Peck, A.E.. “The Chicago Wheat Futures Market: Recent Problems in Historical Perspective.” Food Research Institute Studies 18(1981):89–115.Google Scholar
Hurt, C. “Listen to the Market.” Working paper, Purdue University, 1987.Google Scholar
Jackson, T.E., Irwin, S.H., and Good, D.L.. “1996 Pricing Performance of Market Advisory Services for Corn and Soybeans.” AgMAS Project Research Report 1997-02, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, December 1997.Google Scholar
Kahneman, D., and Riepe, M.W.. “Aspects of Investor Psychology.” Journal of Portfolio Management 24(1998):52–65.CrossRefGoogle Scholar
Kahneman, D., Slovic, P., and Tversky, A.. Judgment Under Uncertainty: Heuristics and Biases. Cambridge: Cambridge University Press, 1982.CrossRefGoogle Scholar
Kaldor, N. “Speculation and Economic Stability.” Review of Economic Studies 7(October 1939):1–27.CrossRefGoogle Scholar
Kastens, T.L., and Dhuyvetter, K.C.. “Post-Harvest Grain Storing and Hedging with Efficient Futures.” NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. Schroeder, T., ed., pp. 335-57. Manhattan, KS: Department of Agricultural Economics, 1999.Google Scholar
Kenyon, D.E. “Producer Ability to Forecast Harvest Corn and Soybean Prices.” Review of Agricultural Economics 23(2001):151-62.CrossRefGoogle Scholar
Keynes, J.M.A Treatise on Money, Volume 2. New York: Harcourt, 1930.Google Scholar
National Agricultural Statistics Service. “Historical Data.” Internet site: http://www.usda.gov/nass/pubs/histdata.htm (Accessed March 2000).Google Scholar
Technical Tools, Inc. Unpublished electronic database. Palo Alto, CA, 1999.Google Scholar
Telser, L.G. “Futures Trading and the Storage of Cotton and Wheat.” Journal of Political Economy 66(June 1958):233-55.CrossRefGoogle Scholar
Thompson, S. “Returns to Storage in Coffee and Cocoa Futures Markets.” Journal of Futures Markets 6(1986):541-64.CrossRefGoogle Scholar
Weymar, F.H. “The Supply of Storage Revisited.” American Economic Review 39(December 1949):1226-34.Google Scholar
Williams, J.C., and Wright, B.D.. Storage and Commodity Markets. New York: Cambridge University Press, 1991.CrossRefGoogle Scholar
Working, H. “Price Relations Between May and New-Crop Wheat Futures at Chicago Since 1885.” Wheat Studies of Food Research Institute 10(February 1934):183–228.Google Scholar
Working, H. “Theory of the Inverse Carrying Charge in Futures Markets.” Journal of Farm Economics 30(February 1948):1–28.CrossRefGoogle Scholar
Working, H. “The Theory of Price of Storage.” American Economic Review 39(May 1949):1254-62.Google Scholar
Wright, B.D., and Williams, J.C.. “A Theory of Negative Prices for Storage.” Journal of Futures Markets 9(February 1989):1–13.CrossRefGoogle Scholar