Three essays in commodity futures markets

Three essays examining contemporary issues in diverse themes including commodity storage theory, livestock marketing and price discovery, and intraday announcement effects in electronic futures markets are presented. In the first essay we investigate storage in the presence of backwardation and the existence of the Working curve for CBOT corn, soybeans, and wheat markets and the KCBT wheat market using 1990-2010 data. Two spread measures—the futures-spot and futures-futures—are matched with deliverable stocks on the first Friday of delivery. To account for grade and location aggregation issues, the futures-spot spreads are measured using the lowest spot bid and highest futures price. Storage in the presence of backwardation is pervasive both in terms of the percent of observations and the magnitude of the stockholdings. The Working curve emerges most clearly in KCBT wheat and soybeans. Convenience yield is also supported by the negligible holdings of delivery shipping certificates in backwardations. The second essay examines the relationship between live cattle futures and negotiated boxed beef cutout prices. To account for temporal differences in information contained in boxed beef report release, Friday afternoon boxed beef prices are compared to both current day and one-day prior live cattle futures settlement prices. Extensive testing and innovation accounting based on VECM residuals indicate that the futures price leads boxed beef price as the dominant source of information in the fed cattle market. The futures price has a strong predictive influence on the boxed beef price and appears to assimilate fed cattle price information quicker than both current and one-day ahead boxed beef prices. Newly-developed price discovery metrics interpreted to allow for a maximum boxed beef effect in the pricing process still identify the dominance of the current futures price, and about equal weighting for the lagged one-day futures price. The final essay contributes to the literature on intraday USDA announcement effects in electronic agricultural futures market by examining market reactions in CBOT electronic soybean futures market using 15-second returns and trade volumes. Strongest market reactions to news occur in the first 10 to 15 minutes following report release regardless of the timing of the release. Marginally higher volatility in both magnitude and duration persist for trading-hour report releases compared to non-trading hour releases. Comparison of report effects using the normalized volatility measure which standardizes report day volatility by pre-/post-report day volatility indicates more pronounced market reactions during trading hour releases. The anticipated benefits of releasing reports during highly liquid market trading hours are not evident in the evolution of trade volume or return variance as more trades are required to incorporate information in the first few minutes following trading hour report release. Nonetheless, the results in general support earlier studies that indicate that soybean futures markets are quick and efficient in incorporating new information into prices