Globally Distributed Production and the Pricing of CME Commodity Futures

Merener, Nicolas

doi:10.2139/ssrn.1958656

Cited by 5 publications

(7 citation statements)

References 22 publications

(38 reference statements)

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“…1 soybean futures has weakened through time, indicating a more influential Chinese soybean market. Merener () investigated how local supply shocks in the globally distributed production of commodities are incorporated into CME futures prices and found that CME soybean futures prices have become increasingly sensitive to supply shocks outside of the United States.…”

Section: Introductionmentioning

confidence: 99%

Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach

Hayes

2016

Journal of Futures Markets

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This paper investigates the lead-lag relationships among soybean prices in United States, Brazilian, and Chinese futures markets. We focus on both long-run price co-movements and on short-run price relationships. Various co-integration methodologies and causality tests are applied to examine the changes in price relationships over time. The empirical results indicate the following: (a) the soybean futures market in the U.S. is still the most important and influential market, and the U.S. price, in the long-term, leads price changes in Brazil and China; (b) in the short-term, the overnight return of U.S. soybean futures and the daytime return of Chinese No. 1 soybean futures contemporaneously affect each other, but there is no significant causality between U.S. overnight return and the daytime return of Chinese No. 2 soybean futures; and, (c) a weak temporal seasonal causality between U.S. and Brazilian soybean futures price exists and more often than not Brazilian futures lead U.S. futures during the Brazilian growing season.

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Section: Introductionmentioning

confidence: 99%

Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach

Hayes

2016

Journal of Futures Markets

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“…This is also consistent with principal component studies showing that commodity term structures fluctuate mostly in a parallel manner (Cortazar & Schwartz, ). In similar vein, Merener () shows that the empirical impact of an inch of summer rain in the US Midwest has instantaneous effect of similar magnitude on the price of the nearest November soybean contract and on the price of the subsequent year May soybean contract.…”

Section: Supply Shocks and Extreme Returnsmentioning

confidence: 87%

“…Therefore, the number of units (countries in this paper) involved in the production of a certain commodity might be a key determinant of some features of the global commodity price dynamics. Preliminary evidence in this direction is in Merener (), who studied the effect of changing global patterns of production in the dynamics of soybean prices exclusively. By relying on rain as an exogenous source of local supply shocks in Argentina and the US Midwest, Merener () found that CME soybean prices have become increasingly sensitive to rain in Argentina and less sensitive to rain in the US Midwest.…”

Section: Introductionmentioning

confidence: 99%

“…Preliminary evidence in this direction is in Merener (), who studied the effect of changing global patterns of production in the dynamics of soybean prices exclusively. By relying on rain as an exogenous source of local supply shocks in Argentina and the US Midwest, Merener () found that CME soybean prices have become increasingly sensitive to rain in Argentina and less sensitive to rain in the US Midwest. This change in sensitivity has correlated strongly with the increase in Argentina's share of global production and the decrease in the US share of global output between 1996 and 2010.…”

Section: Introductionmentioning

confidence: 99%

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Concentrated Production and Conditional Heavy Tails in Commodity Returns

Merener

2015

Journal of Futures Markets

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I study the impact of commodity production concentration on the occurrence of extreme commodity returns. I explore this issue in a sample of 22 agricultural, mineral and energy commodities of global scope that are liquidly traded through futures at the most important exchanges. I find that measures of production concentration such as the Herfindahl index computed on national shares of global output, or the market share of the top three producers, had significant and positive effect on measures of extreme returns during 1995–2012, as implied by daily return kurtosis or the shape parameter of the distribution of extreme returns. Volatility persistence appears unlikely to generate the cross sectional kurtosis observed empirically unless heavy tailed conditional returns are also included in the dynamics. The results are economically significant and robust to the inclusion of controls for inventories, futures liquidity, and country size. These findings are consistent with a simple mechanism of aggregation of globally distributed local supply shocks that impact global supply and hence commodity prices. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:46–65, 2016

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“… For example, world spot grain prices have long been determined by CME Group futures prices for grain. However, as the U.S. share of world grain production falls the question naturally arises as to whether “local supply shocks in the globally distributed production of commodities are incorporated into Chicago Mercantile Exchange (CME) futures prices.” Professor Merener () examines this question using rainfall as an exogenous variable measuring supply shocks and concludes: “traders of CME contracts seem to aggregate supply in a globally integrated manner and are exposed to globally distributed shocks.” …”

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confidence: 99%

Recent Advances in the Literature: Asia-Pacific Derivative Markets

Webb

2016

Asia Pac J Financ Stud

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Although most researchers trace the origin of modern futures markets to the creation of the Chicago Board of Trade in the 1840s, Hamori et al. (Journal of Futures Markets, 2001, 21, 861) argue that modern futures markets originated with the establishment of the Dojima Rice Exchange in Osaka in the early 1700s. Yet, derivative markets based in the Asia–Pacific region have only recently become important from a global perspective as measured by relative trading volume. Not surprisingly, the recent sharp growth in trading volume has stimulated much research on derivatives traded on Asia–Pacific markets as well. This study discusses some of that recent research.

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Globally Distributed Production and the Pricing of CME Commodity Futures

Cited by 5 publications

References 22 publications

Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach

Price Discovery on the International Soybean Futures Markets: A Threshold Co‐Integration Approach

Concentrated Production and Conditional Heavy Tails in Commodity Returns

Recent Advances in the Literature: Asia-Pacific Derivative Markets

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