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Soybean Inventory and Forward Curve Dynamics

Nguyen, Vu-Nhat; Geman, Hélyette (2005), Soybean Inventory and Forward Curve Dynamics, Management Science, 51, 7, p. 1076-1091. http://dx.doi.org/10.1287/mnsc.1050.0361

Type
Article accepté pour publication ou publié
Date
2005
Journal name
Management Science
Volume
51
Number
7
Publisher
INFORMS
Pages
1076-1091
Publication identifier
http://dx.doi.org/10.1287/mnsc.1050.0361
Metadata
Show full item record
Author(s)
Nguyen, Vu-Nhat
Geman, Hélyette
Abstract (EN)
We present two results concerning soybean prices. First, we exhibit a simple relationship between stocks and price volatility. The observation of an increasing price volatility with decreasing inventory is often mentioned in the literature, but has so far been documented using a proxy for inventory (see Fama and French 1987, 1988; Litzenberger and Rabinowitz 1995). Instead, we reconstruct a yearly, quarterly, and monthly database of worldwide soybean inventories using aggregate data from the United States, Brazil, and Argentina. We show that under all time scales, price volatility is an increasing linear function of inverse inventory, which we term "scarcity." Second, we show how the addition of the factor scarcity in a state-variable approach to the dynamics of the term structure of soybean forward prices improves the quality of the fit. We document this property on a 25-year database of CBOT futures contracts and show that the superior accuracy also affects long-maturity futures contracts, an important property for the valuation of long-term origination contracts between producing countries and the agrifood industry.
Subjects / Keywords
Scarcity-related volatility; State variables; Term structure of soybean forward prices
JEL
E43 - Interest Rates: Determination, Term Structure, and Effects
O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products

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