Agric. Econ. - Czech, 2023, 69(12):471-484 | DOI: 10.17221/278/2023-AGRICECON

Are futures markets functioning well for agricultural perishables? Evidence from China’s apple futures marketOriginal Paper

Qianqian Mao ORCID...1,2,3, Jens-Peter Loy3, Thomas Glauben4, Yanjun Ren5,4
1 School of Economics, Zhejiang University of Technology, Hanghzou, China
2 Institute for Industrial System Modernization, Zhejiang University of Technology, Hangzhou, China
3 Department of Agricultural Economics, University of Kiel, Kiel, Germany
4 Leibniz Institute of Agricultural Development in Transition Economies (IAMO), Halle, Germany
5 College of Economics and Management, Northwest A & F University, Yangling, China

Emerging economies often establish commodity futures markets to discover price signals, manage price risks and improve market integration, but establishing a futures market may not be feasible for agricultural perishables. In this study, we evaluated the function of the world’s first fresh fruit futures contract for apples. Combining partial cointegration with state-space modelling, we derived time-varying price discovery metrics for the apple futures market. Our findings revealed a limited and time-varying dominance of price discovery by the futures market, while a substantial share of price discovery occurred in the spot market. Moreover, poor convergence of disaggregated spot prices to the futures price suggests that commercial traders in the apple supply chain tended to focus more on the spot market than on the futures market. Thus, emerging economies should be cautious about the new establishment of futures markets for agricultural perishables. Future research using more specific data on the spot market may provide a better insight on the limited function of the futures market.

Keywords: market integration; partial cointegration; price discovery; price transmission

Received: August 23, 2023; Revised: October 22, 2023; Accepted: November 20, 2023; Prepublished online: December 15, 2023; Published: December 19, 2023  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Mao Q, Loy J, Glauben T, Ren Y. Are futures markets functioning well for agricultural perishables? Evidence from China’s apple futures market. Agric. Econ. - Czech. 2023;69(12):471-484. doi: 10.17221/278/2023-AGRICECON.
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Adämmer P., Bohl M.T. (2018): Price discovery dynamics in European agricultural markets. Journal of Futures Markets, 38: 549-562. Go to original source...
    2. Ankamah-Yeboah I., Nielsen M., Nielsen R. (2017): Price formation of the salmon aquaculture futures market. Aquaculture Economics and Management, 21: 376-399. Go to original source...
    3. Baillie R.T., Booth G.G., Tse Y., Zabotina T. (2002): Price discovery and common factor models. Journal of Financial Markets, 5: 309-321. Go to original source...
    4. Bohl M.T., Siklos P.L., Stefan M., Wellenreuther C. (2020): Price discovery in agricultural commodity markets: Do speculators contribute? Journal of Commodity Markets, 18: 100092. Go to original source...
    5. Bohl M.T., Stephan P.M. (2013): Does futures speculation destabilize spot prices? New evidence for commodity markets. Journal of Agricultural and Applied Economics, 45: 595-616. Go to original source...
    6. Bohl M.T., Sulewski C. (2019): The impact of long-short speculators on the volatility of agricultural commodity futures prices. Journal of Commodity Markets, 16: 100085. Go to original source...
    7. Brenner R.J., Kroner K.F. (1995): Arbitrage, cointegration, and testing the unbiasedness hypothesis in financial markets. Journal of Financial and Quantitative Analysis, 30: 23-42. Go to original source...
    8. Brorsen B.W., Fofana N.F. (2001): Success and failure of agricultural futures contracts. Journal of Agribusiness, 19: 129-145.
    9. Ceglowski J. (2003): The law of one price: Intranational evidence for Canada. The Canadian Journal of Economics / Revue canadienne d'Economique, 36: 373-400. Go to original source...
    10. Clegg M., Krauss C. (2018): Pairs trading with partial cointegration. Quantitative Finance, 18: 121-138. Go to original source...
    11. Dimpfl T., Flad M., Jung R.C. (2017): Price discovery in agricultural commodity markets in the presence of futures speculation. Journal of Commodity Markets, 5: 50-62. Go to original source...
    12. Enders W., Lee J. (2012): A unit root test using a Fourier series to approximate smooth breaks. Oxford Bulletin of Economics and Statistics, 74: 574-599. Go to original source...
    13. Etienne X.L., Irwin S.H., Garcia P. (2015): Price explosiveness, speculation, and grain futures prices. American Journal of Agricultural Economics, 97: 65-87. Go to original source...
    14. Fan C.S., Wei X. (2006): The law of one price: Evidence from the transitional economy of China. Review of Economics and Statistics, 88: 682-697. Go to original source...
    15. FIA (2021): 2020 annual trends in futures and options trading. Available at https://www.fia.org/sites/default/files/2021-01/2020%20annual%20trends%20in%20futures%20and%20options%20trading_%2027%20January%202021%20Distribution.pdf (accessed Apr 13, 2021).
    16. Gregory A.W., Hansen B.E. (1996): Tests for cointegration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics, 58: 555-560. Go to original source...
    17. Gonzalo J., Granger C. (1995): Estimation of common long-memory components in cointegrated systems. Journal of Business and Economic Statistics, 13: 27-35. Go to original source...
    18. Hasbrouck J. (1995): One security, many markets: Determining the contributions to price discovery. The Journal of Finance, 50: 1175-1199. Go to original source...
    19. Hu Z., Mallory M., Serra T., Garcia P. (2020): Measuring price discovery between nearby and deferred contracts in storable and nonstorable commodity futures markets. Agricultural Economics, 51: 825-840. Go to original source...
    20. Huchet N., Fam P.G. (2016): The role of speculation in international futures markets on commodity prices. Research in International Business and Finance, 37: 49-65. Go to original source...
    21. Lien D., Shrestha K. (2009): A new information share measure. Journal of Futures Markets, 29: 377-395. Go to original source...
    22. Lucia J.J., Pardo A. (2010): On measuring speculative and hedging activities in futures markets from volume and open interest data. Applied Economics, 42: 1549-1557. Go to original source...
    23. Maddala G.S., Wu S. (1999): A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61: 631-652. Go to original source...
    24. Milgrom P. (2017): Discovering Prices: Action Design in Markets with Complex Constraints. New York, Columbia University Press: 248. Go to original source...
    25. Mohanty S.K., Mishra S. (2020): Regulatory reform and market efficiency: The case of Indian agricultural commodity futures markets. Research in International Business and Finance, 52: 101145. Go to original source...
    26. Perera D., Białkowski J., Bohl M.T. (2020): Does the tea market require a futures contract? Evidence from the Sri Lankan tea market. Research in International Business and Finance, 54: 101290. Go to original source...
    27. Perron P. (1989): The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57: 1361-1401. Go to original source...
    28. Pindyck R.S. (2001): The dynamics of commodity spot and futures markets: A primer. The Energy Journal, 22 (3), 1-29. Go to original source...
    29. Putniņš T.J. (2013): What do price discovery metrics really measure? Journal of Empirical Finance, 23: 68-83. Go to original source...
    30. Rittler D. (2012): Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis. Journal of Banking and Finance, 36: 774-785. Go to original source...
    31. Sanders D.R., Manfredo M.R. (2002): The white shrimp futures market: Lessons in contract design and marketing. Agribusiness, 18: 505-522. Go to original source...
    32. Singh K.M. (2012): Overview of futures trading in agricultural commodities: A conceptual perspective. SSRN Electronic Journal: 6.
    33. Van Huellen S. (2018): How financial investment distorts food prices: Evidence from U.S. grain markets. Agricultural Economics, 49: 171-181. Go to original source...
    34. Vollmer T., Herwartz H., Von Cramon-Taubadel S. (2020): Measuring price discovery in the European wheat market using the partial cointegration approach. European Review of Agricultural Economics, 47: 1173-1200. Go to original source...
    35. WIND (2022): Qianhai wholesale price index for red fuji apples. Available at https://www.wind.com.cn/ (accessed Nov 1, 2022).
    36. Working H. (1948): Theory of the inverse carrying charge in futures markets. Journal of Farm Economics, 30: 1-28. Go to original source...
    37. Yan B., Zivot E. (2010): A structural analysis of price discovery measures. Journal of Financial Markets, 13: 1-19. Go to original source...
    38. Yang J., Bessler D.A., Leatham D.J. (2001): Asset storability and price discovery in commodity futures markets: A new look. Journal of Futures Markets, 21: 279-300. Go to original source...
    39. Yang J., Li Z., Wang T. (2021): Price discovery in Chinese agricultural futures markets: A comprehensive look. Journal of Futures Markets, 41: 536-555. Go to original source...
    40. ZCE (2018): Materials on Apple Futures Market. Available at http://www.czce.com.cn/cn/uploadfile/2018/08/20/20180820222620226.pdf (accessed June 29, 2020; in Chinese).
    41. ZCE (2022): Fresh apple futures price. Available at http://english.czce.com.cn/en/MarketData/HistoricalData/H810217index_1.htm (accessed Nov 1, 2022).

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY NC 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content