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Soybean Inventory and Forward Curve Dynamics

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Date
2005
Dewey
Economie financière
Sujet
Scarcity-related volatility; State variables; Term structure of soybean forward prices
JEL code
E43; O16; O13
Journal issue
Management Science
Volume
51
Number
7
Publication date
07-2005
Article pages
1076-1091
Publisher
INFORMS
DOI
http://dx.doi.org/10.1287/mnsc.1050.0361
URI
https://basepub.dauphine.fr/handle/123456789/1937
Collections
  • DRM : Publications
Metadata
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Author
Nguyen, Vu-Nhat
Geman, Hélyette
Type
Article accepté pour publication ou publié
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.

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