THE COST OF FORWARD CONTRACTING IN THE CIF NOLA EXPORT BID MARKET

Andrew McKenzie, Bradley J. Isbell and B Brorsen

Journal of Agricultural and Applied Economics, 2019, vol. 51, issue 1, 164-181

Abstract: The CIF NOLA “river market” represents an important but opaque forward market that serves Gulf exporters and elevators. CIF NOLA bids function similarly to traditional forward contracts; however, like a futures market, firms can offset their forward contractual obligations by offsetting positions in a liquid off-exchange paper market. Analysis shows grain sellers pay a risk premium for fall harvest delivery contracts. However, outside of fall harvest, contract liquidity, coupled with a good institutional balance of long and short market participants, mostly removes the pricing bias commonly found in farmer forward contracting in corn and soybeans.

Date: 2019
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