Agricultural Prices And Commodity Market Analysis

by Ferris, John

• ISBN13: 9780870137518
• ISBN10: 0870137514
• Format: Hardcover
• Copyright: 2005-12-01
• Publisher: Michigan State Univ Pr

Summary

This book features the application of economic theory to agriculture and the food industry, using quantitative tools. The blend of theory and application is unique in detailing how demand and supply can be measured and how econometric simulation models may be constructed and evaluated. The volume focuses on forecasting and generating long-term projections as well as discussing the relatively unexplored area of stochastic modeling, which is critical in handling crop yield variability. Other topics covered in the text include agricultural policy analysis and futures/options markets. The role of time series models in improving structural equations and forecasting techniques provides a capstone for this book.

Author Biography

John N. (Jake) Ferris is a professor emeritus in the Department of Agricultural Economics at Michigan State University.

Table of Contents

Preface	xvii
Introduction	1	(4)
SECTION I THEORETICAL CONCEPTS AND EMPIRICAL MEASUREMENT OF DEMAND AND SUPPLY	5	(92)
Theoretical Concepts of Demand and Supply	7	(14)
Demand	8	(3)
Demand as a Composite	8	(2)
Demand Shifters	10	(1)
Irreversibility	10	(1)
Formulation of Demand Equations	11	(4)
Farm Supply	15	(1)
Price Spreads, Derived Demand, and Price Formation	16	(3)
Price Spreads	16	(2)
Implications of Fixed Spreads	18	(1)
Summary	19	(1)
Questions for Study	19	(2)
Measuring Demand for Domestic Consumption	21	(21)
Single Demand Equations	21	(9)
Price	23	(1)
Population	23	(1)
Adjusted Population Variable	24	(1)
Income	25	(1)
General Inflation	26	(1)
Other Demand Factors	26	(3)
Quarterly and Monthly Demand Equations	29	(1)
Demand Elasticities, Flexibilities, and Impact Multipliers	30	(4)
Demand Elasticity	31	(1)
Demand Flexibility	31	(1)
Impact Multipliers	31	(1)
Point Elasticities and Flexibilities	31	(2)
Relationship Between Elasticities and Flexibilities	33	(1)
Role of These Measurements	34	(1)
Demand Systems	34	(5)
Conditions	35	(1)
Empirical Example	35	(1)
Pros and Cons	36	(3)
Conditional Regression	39	(1)
Summary	40	(1)
Questions for Study	40	(2)
Measuring Demands for Storage, Speculation, and Exports	42	(11)
Demand for Storage and Speculation	42	(2)
Current and Expected Prices	43	(1)
Storage Costs and Availability	44	(1)
Demand for Exports	44	(7)
Prices and Exchange Rates	46	(3)
Population and Purchasing Power	49	(1)
Foreign Production and Carryover	49	(1)
Trade Policies	50	(1)
Transportation Costs	50	(1)
Livestock Feed	51	(1)
Concluding Comment	51	(1)
Summary	51	(1)
Questions for Study	51	(2)
Measuring Price Spreads and Derived Demand for Agricultural Products and Inputs	53	(19)
Price Spreads and Derived Demand for Agricultural Products	54	(7)
Formulation at Equilibrium	54	(1)
USDA Retail-Farm Price Spreads	55	(3)
U.S. Marketing Costs and Profits	58	(1)
Direct Forecasting of Retail Food Prices	59	(2)
Price Spreads Related to Quality Differences	61	(6)
Government Grades	61	(1)
Modeling Grades and Close Substitutes	62	(1)
Wholesale Beef Market Example	63	(2)
Processed Feed Market Example	65	(2)
Demand for Agricultural Inputs	67	(3)
Income and Equity	68	(1)
Prices, Costs, Government Programs, and Productivity	68	(1)
Replacement Demand	69	(1)
Enterprise Profit and Risk	69	(1)
Technical Requirements and Structure	69	(1)
Deflation	69	(1)
Summary	70	(1)
Questions for Study	70	(2)
Measuring Farm Supply	72	(25)
Expectations	73	(12)
Geometric Distributed Lags	75	(3)
Polynomial Distributed Lags	78	(4)
Rational Expectations	82	(3)
Risk and Its Measurement	85	(2)
Gross Margins and Ratios	87	(8)
Formulation	88	(2)
Costs of Production	90	(1)
Gross Margin on Corn	91	(3)
Pros and Cons	94	(1)
Integrated Supply Models	95	(1)
Summary	96	(1)
Questions for Study	96	(1)
SECTION II GENERATION OF ECONOMETRIC/SIMULATION MODELS	97	(72)
Recursive and Simultaneous Supply-Demand Models	99	(22)
Recursive Models	100	(12)
Price Dependent Demand	100	(3)
Quantity Dependent Demand	103	(2)
Geometric Lags	105	(2)
More Complex Lag Structures	107	(4)
Observation of Large Models	111	(1)
Why Cycles Persist in Agriculture	111	(1)
Simultaneous Models	112	(7)
Identification Problem	114	(4)
Two-Stage Least Squares	118	(1)
Relevance of Simultaneity	119	(1)
Summary	119	(1)
Questions for Study	120	(1)
Building Econometric/Simulation Models	121	(21)
Gauss-Seidel Algorithm	122	(2)
Guidelines for Model Building	124	(4)
The Balance Sheet	128	(1)
Examples of Econometric/Simulation Models	129	(4)
Livestock	129	(2)
Dairy	131	(2)
Large-Scale Econometric Models	133	(7)
SWOPSIM	134	(2)
AGMOD	136	(2)
Dynamic Generation of Elasticities and Flexibilities	138	(2)
Summary	140	(1)
Questions for Study	141	(1)
Forecast Evaluation	142	(12)
Asymmetric Errors	143	(1)
Measures of Total Error	144	(1)
Measures of Bias Error	145	(1)
Theil's Inequality Coefficients	145	(1)
Standards for Comparison	146	(3)
Short-range (Period-to-Period) Forecasting Evaluation	147	(1)
Long-range Forecasting Evaluation	147	(2)
Double Exponential Smoothing (DES)	149	(1)
Handling Exogenous Variables	150	(2)
Ex-Ante and Ex-Post	152	(1)
Handling the Random Error	152	(1)
Summary	153	(1)
Questions for Study	153	(1)
Stochastic Modeling	154	(15)
Scope of the Problem	154	(3)
How to Proceed	157	(1)
Crop Yield Distributions and Normality Tests	158	(2)
Aggregation of Countries or Regions	160	(1)
Distributions and Correlations	161	(1)
An Example with Microtsp	162	(4)
Summary	166	(1)
Questions for Study	166	(3)
SECTION III LONG-TERM PROJECTIONS AND APPLICATIONS	169	(48)
Generating Long-Term Projections and Forecasts	171	(18)
Quantitative Approach	172	(10)
Demand	173	(5)
Supply	178	(3)
Prices	181	(1)
Combining Subjective with Quantitative Methods	182	(5)
Scenario Writing	183	(1)
Delphi	184	(2)
Nominal Group Technique	186	(1)
Example of Long-range Outlook Projects	186	(1)
Summary	187	(1)
Questions for Study	187	(2)
Spatial Commodity Analysis and Trade	189	(19)
Representative Prices	190	(1)
Price Surfaces	190	(1)
Market Division	191	(1)
Simple Trade Model	192	(4)
Interregional Analysis	196	(2)
Interregional Analysis Expanded	198	(2)
Shift-Share Analysis	200	(2)
Plant Location	202	(4)
Summary	206	(1)
Questions for Study	206	(2)
Application of Models to Long-Range Planning and Policy Analysis	208	(9)
Farmers and Agribusinesses	209	(1)
Policy Analysis	210	(2)
Policy Instruments	210	(2)
Modeling Decision Makers and Modifying Policy Assumptions	212	(1)
New Challenges	212	(4)
Dynamic vs. Static	213	(1)
Stochastic Impacts	214	(1)
Implications to Producers, Consumers, and Taxpayers	214	(1)
Impacts on Types of Farms by Regions	215	(1)
Implications to Total Food System and Economy	215	(1)
Evaluation of Research and Education	215	(1)
Summary	216	(1)
Questions for Study	216	(1)
SECTION IV SHORT-TERM FORECASTING, FUTURES MARKETS, AND SOURCES OF MARKET INFORMATION	217	(124)
Seasonals	219	(14)
Generating a Seasonal Price Pattern	220	(2)
Example on Hogs	222	(3)
Fitting Seasonals to Decision Making	225	(6)
Summary	231	(1)
Questions for Study	232	(1)
Commodity Futures and Options Markets	233	(20)
What are Futures Markets?	234	(6)
Description	234	(1)
How Futures Prices Are Quoted	235	(1)
Who Participates	236	(1)
What Commodities Are Traded, Where, and Why?	236	(1)
Economic Functions	237	(2)
Concepts About Futures Not Easily Understood	239	(1)
Options on Futures	240	(3)
Factors Affecting Premiums	241	(1)
How Options Prices Are Quoted	242	(1)
Profit Patterns Diagrammed	243	(2)
Pricing Options	245	(3)
Black/Scholes Model	246	(2)
Delta Formulas	248	(1)
Summary	248	(1)
Questions for Study	249	(1)
Glossary	249	(4)
Forward Pricing with Futures and Options	253	(29)
Selling a Cash Product	253	(15)
Simple Storage Hedge	254	(3)
Storing Soybeans and Buying Puts	257	(2)
Forward Pricing Alternatives for a New Crop	259	(9)
Emerging Rules	268	(3)
More Exotic Forward Pricing Schemes	271	(1)
Buying a Cash Product	271	(2)
Basis---A Key to Effective Forward Pricing	273	(5)
New Crop Basis	275	(1)
Storage Basis	275	(3)
Hedge Ratios	278	(2)
Summary	280	(1)
Questions for Study	280	(2)
Technical Analysis	282	(23)
Price Discovery and Market Efficiency	282	(2)
Vertical Bar Charts	284	(11)
Formations	284	(3)
Trend Lines	287	(3)
Continuation Formations	290	(2)
Reversals	292	(1)
Gaps	293	(2)
Moving Averages and Stochastics	295	(3)
Moving Averages	295	(2)
Stochastics	297	(1)
Volume, Open Interest, and Price	298	(1)
Relative Strength Index	299	(1)
Net Trader Positions	300	(1)
Other Technical Tools	300	(2)
Point and Figure Charting	300	(2)
Cycles	302	(1)
Japanese Candlesticks	302	(1)
Evaluation	302	(2)
Summary	304	(1)
Questions for Study	304	(1)
Time Series Models	305	(25)
Stationarity	306	(5)
White Noise	307	(1)
Dickey-Fuller Test	308	(3)
Engle-Granger Co-integration Test	311	(1)
Applying Ar, Ma, and Arma Models to a Demand Equation on Hogs	311	(7)
Correcting for Serial Correlation in Residuals with AR(1)	313	(1)
Autoregressive Models (AR)	314	(2)
Moving Average Models (MA)	316	(1)
Autoregressive Moving Average Models (ARMA)	316	(1)
Application of ARMA to Residuals in OLS Equations	317	(1)
Integrated Autoregressive Moving Average Models (ARIMA)	318	(4)
Univariate Forecasting with Time Series Models	322	(6)
Summary	328	(1)
Questions for Study	328	(2)
Sources of Agricultural Data and Market Analysis	330	(11)
Monitors in Agriculture and Food	332	(5)
Crop and Livestock Estimates, General Farm Statistics	332	(1)
Applying the Census and Other Non-annual Data	333	(3)
Market News	336	(1)
Macro, Other Data Related to Agriculture and Food	336	(1)
International Statistics	337	(1)
Interpreters (Analysts) in Agriculture and Food	337	(1)
Electronic Transmission	338	(1)
Summary	338	(1)
Questions for Study	338	(3)
Appendix A Glossary of Statistical Terms	341	(4)
Appendix B A Note on Indices	345	(2)
References	347	(8)
Author Index	355	(2)
Subject Index	357