Essays on agricultural commodity spot and forward markets

This thesis explores several topics related to agricultural commodities. It is comprised of three empirical chapters: In Chapter 2, we show the validity of investing capital in fertilizer mining companies, both from a market return perspective for individual or institutional investors, and from a hedging standpoint for insurance companies and other economic actors exposed to inflation risk and high agricultural commodity prices. First, we explore the relationship between corn, wheat, and fertilizers, showing how price spikes in corn and wheat, followed by a price spike in fertilizers, made fertilizers visible to investors for the first time. We then analyse an exhaustive sample of listed fertilizer-mining companies and look at the sensitivities of their stocks to agricultural indexes and the fertilizer index in order to better explain the high returns they offered at the time of the first food crisis. Chapter 3 focuses on corn and wheat and is twofold. Firstly, we argue that the coefficient of variation and standard deviation of prices are more informative measures of uncertainty than the volatility of returns, since it is food prices and their “volatility” that matter for the survival of human beings. Secondly, we compare the quality of future price prediction provided by individual forward contracts with the geometric average of the forward curve introduced by Borovkova and Geman (2006). We find that the average value of the forward [...