Insights from Anticipatory Prices

Leslie J. Verteramo Chiu and William G. Tomek

Journal of Agricultural Economics, 2018, vol. 69, issue 2, 351-364

Abstract: Contemporaneous observations on expected supply and on prices of post†harvest futures contracts for corn are used to estimate expected demand relationships. These equations are used to estimate the prices of the post†harvest contracts based on new supply estimates. Each estimate can be compared with a corresponding futures price, i.e. the market forecast. The differences help discern the market expectations about the expected demand for the new crop relative to historical experience, which can help support outlook analyses. We find that in recent years, a 100 million bushel change in the expected supply of corn results in about a 6 cent per bushel negative change in the price of December corn. The discussion also deepens understanding of the term ‘anticipatory prices’ as defined by Holbrook Working in his 1958 work.

Date: 2018
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