Return and Risk Performance of Basis Strategy: A Case Study of Illinois Corn and Soybeans, 1975-2012 Crop Years

Sanghyo Kim and Carl Zulauf

No 285816, 2014 Conference, April 21-22, 2014, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: The study examines if a storage strategy based on the cash-futures basis (the basis strategy) has been profitable over the 1975-2012 crop years for Illinois corn and soybeans. The study first examines the means and standard deviations of annual net storage returns obtained from hedged and unhedged storage when routinely storing each year and when using the basis strat- egy. For both the period of higher commodity prices since 2005 and the pre-2006 period, the basis strategy is found to (1) improve net returns to hedged but not unhedged storage and (2) lower the return risk for both hedged and unhedged storage. Previous studies have not exam- ined the basis strategy's impact on the return risk for unhedged storage. To further investigate the performance of the basis strategy in these two periods, the performance of the expected net return to storage in forecasting the observed net storage return is examined. Given the panel structure of the data, a Fixed E_x000B_ects (FE) model was chosen to estimate since the re- gion speci_x000C_c e_x000B_ects are of interest. However, signi_x000C_cant cross-equation correlations are found in the disturbances, a characteristic not investigated in previous studies. Thus, a Fixed E_x000B_ects (FE) Panel Seemingly Unrelated Regressions (PSUR) is estimated. Forecast performance of the observed net storage return by the expected net storage return was found to be unbiased in the pre-2006 period. Forecast performance deteriorated somewhat in the post-2006 period as some forecasts were found to be biased. The decline in forecast performance is consistent with during some of the years since 2006.

Keywords: Marketing (search for similar items in EconPapers)
Date: 2014-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/285816/files/K ... ts_NCCC-134_2014.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:n13414:285816

DOI: 10.22004/ag.econ.285816

Access Statistics for this paper

More papers in 2014 Conference, April 21-22, 2014, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management
Bibliographic data for series maintained by AgEcon Search ().