Interrelationships of US Corn and Soybean Cash and Futures Markets with Storage Price Dependence: The Role of Futures Prices and Model Development

Abstract

This study develops a basic conceptual model of the link between supply, demand and international trade, storage and cash, future prices as well as basis (storage prices) of several popular crops, such as corn and soybean, grown in the United States. Corn and soybean are the most common crops in the United States and are the main source of feed grains for cattle, dairy, poultry and hog production. Basically, we provide a brief synopsis of the theoretical concepts that form the basis for the mathematical model of US corn and soybean sectors. The focus is on theories related to the conceptual framework of demand and supply response, as well as the theory of price-of-storage. The theoretical model of simultaneous equilibrium in cash, futures and storage markets is then developed. In particular, the role of futures price is of greater concern in model setting.