Magazine article Amber Waves

Wheat Price Discovery Remains Concentrated in the United States, but Shifting to Europe

Magazine article Amber Waves

Wheat Price Discovery Remains Concentrated in the United States, but Shifting to Europe

Article excerpt

The United States had until recently led the world in the pricing and trade of wheat. In the late 1970s and early 1980s, the U.S. of world wheat exports was 40 to 45 percent. By the 2015-16 marketing year, this share fell to just 13 percent. In the interim, a substantial share of world wheat exports shifted to Russia and Ukraine (collectively, the Black Sea region) and the European Union. In 2015-16, these countries made up 44 percent of world wheat trade, and Russia surpassed the United States as the world's leading wheat exporting nation.

At the same time, U.S. wheat futures (contracts for the purchase/sale of wheat at a given price on a future date) prices are being supplanted by new price benchmarks that more closely track supply and demand conditions in the Black Sea region and the European Union. While the Chicago Mercantile Exchange Soft Red Winter Wheat futures contract is the most active wheat futures market in the world, futures trading volume has grown substantially for the Euronext Milling Wheat contract traded in Paris. Rising volume indicates a market may be more important for price discovery, the process by which markets determine the value of wheat through trades between willing buyers and sellers.

A new study by economists at ERS and Montana State University estimates the relative proportion of price discovery in the Chicago and Paris futures markets between 2008 and 2013. Using high-frequency price data, the authors identify the market where adjustment in the common value of all wheat first occurs. …

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