Basis Volatilities of Corn and Soybean in Spatially Separated Markets: The Effect of Ethanol Demand

Anton Bekkerman and Denis Pelletier

No 49281, 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin from Agricultural and Applied Economics Association

Abstract: The 2006 spike in corn-based ethanol demand has contributed to the increase in basis volatility in corn and soybean markets across the United States, which has, to a significant degree, led to the observed large jumps in the prices of the two commodities. Despite the overall rise in basis volatility, there remain differences in the degree of volatility that exists across spatially separated markets, which might be caused by factors such as transportation costs, seasonality, and time-to-delivery. The focus of this study is threefold first, this work models basis data for six corn and soybean markets by using a multivariate GARCH model that incorporates the spatial linkages of these markets; next, the model is used to investigate whether the increase in ethanol demand has significantly aided in the rise of basis volatilities; and last, the spatio-temporal linkages among basis volatilities in different markets are examined under various scenarios of spot-price shocks.

Keywords: Agricultural Finance; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 27
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea09:49281

DOI: 10.22004/ag.econ.49281

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