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Market Inversion in Commodity Futures Prices

Published online by Cambridge University Press:  28 April 2015

Byung-Sam Yoon  and
B. Wade Brorsen
Byung-Sam Yoon
Affiliation:
Korean Futures Association, Stillwater, OK
B. Wade Brorsen
Affiliation:
Jean & Patsy Neustadt Chair, Department of Agricultural Economics, Oklahoma State University, Stillwater, OK
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Abstract

In an inverted market, current prices are higher than future prices and thus the price of storage is negative. Market inversions as measured with futures spreads rarely occur during early months of the crop year. However, market inversions frequently occur across crop years and near the end of the crop year. In the last half of the crop year, market inversions clearly reflect a signal to sell stocks. Too few inversions occur early in the crop year to reach a definitive conclusion for that period. Behavioral finance offers possible explanations of why producers would hold stocks in an inverted market.

Keywords

convenience yieldcost of carrymarket inversionQ13
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 34 , Issue 3 , December 2002 , pp. 459 - 476
Copyright
Copyright © Southern Agricultural Economics Association 2002

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