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Climate’s Currency: How ENSO Events Shape Maize Pricing Structures Between the United States and South Africa
Climate change manifests itself in rising temperatures across the continent and affects the El Niño–Southern Oscillation (ENSO) by changing sea surface temperatures and atmospheric circulation. This affects precipitation and temperature patterns, with South Africa normally experiencing drier conditions during El Niño events. These weather anomalies influence crop yields and food prices. Spatial price transmission indicates the extent to which prices of agricultural goods are linked across different geographical areas and how quickly price signals from one area are passed on to another. Although numerous studies explore spatial price transmission between various countries, there is a gap in the literature on price transmission between the US and South African maize markets during ENSO events. Therefore, we investigate how ENSO-related events impacted maize price transmission between the Chicago Mercantile Exchange and the Johannesburg Stock Exchange from 1997 to 2024. The empirical analysis starts with a correlation analysis, followed by tests for cointegration and error correction models. The results confirm the dominating impact of US maize prices on South African prices, but also how this relationship changes based on the nature of the ENSO event. There is some indication of lower levels of integration and higher levels of price diversion during El Niño periods.
Journal Article
How Reliable Are Hog Futures as Forecasts
The Chicago Mercantile Exchange hog futures contract was revamped in 1997 and it is one of the largest futures markets for a nonstorable commodity. The literature is divided on whether or not futures prices for nonstorables provide reliable forecasts of cash prices. We find that from 1998 to 2004, the hog futures market was an unbiased predictor of cash prices.
Journal Article
Role of the Clearinghouse
This chapter contains sections titled:
Financial Safeguards
Financial Surveillance
Default by a Clearing Member
Resources Backing CME Group Clearing System
Customer Protection
Disaster Recovery and Business Continuity
Rule Enforcement
Financial and Regulatory Information Sharing
Conclusion
Book Chapter
Maritime Business Freight Risk Management
Due to the volatile nature of the shipping industry in rates and prices, market practitioners attempt to minimize the impact of adverse price movements of freight rates, bunker fuel prices, interest rates and foreign exchange rates, among others, through the use of financial derivatives products.1 This risk management process has enabled companies operating in the industry to stabilize cash flows (revenues and costs), have more effective budgets, secure their shipping loans, and protect their corporate firm values. This chapter presents an overview of the various derivatives products and markets available to hedge the most important source of risk in the industry—namely, the freight rate risk—and to provide the trade specifics, uses and changes in regulations of freight rate derivatives.2
Book Chapter
This Little Piggy Made a Market
This chapter examines the rise and fall of pork bellies as commodities traded on the futures markets. As a financial instrument, pork bellies were iconic. For many, the image of greedy traders as pigs at the trough was equally iconic. Until pork belly became a headliner on restaurant menus, few knew exactly what a pork belly was. Pork bellies created a viable market at a precarious time for the Chicago Mercantile Exchange, and they lasted for a half-century, until the market closed in July 2011. This chapter first explains what a pork belly is before discussing how trading of hogs and pork parts began. It then considers how novel manufacturing techniques—pioneered in Cincinnati—transformed the meatpacking industry, and how Chicago supplanted Cincinnati as Porkopolis. It also looks at the Chicago stockyards and particularly the “disassembly line” that rose up to slaughter and process hogs, pork belly trading during the Civil War era, the disapperance of bacon from supermarkets, pork belly's revival on American diets, and how technology drove pork bellies out of commodity exchanges.
Book Chapter
The Future of Food Futures?
This chapter considers the possibility that a futures market could be created for each of the food products that are currently not represented on U.S. commodity exchanges. These commodities are canola (rapeseed), cassava, fish, grapes or grape juice concentrate, honey, olive oil, salt, sheep and lambs, and tea. The idea that these commodities could be traded is not far-fetched. In fact, there are shortlists of products that have been considered for trade—most of which never came to be (again, at least not yet). In 1969, for example, there were plans for the formation of a Pacific Coast Commodity Exchange, which was to open in 1971 with coconut oil as its first contract. It never came to fruition. In addition, the former Chicago Mercantile Exchange's New Commodities Committee has, at various times, considered a variety of products as possibilities for futures contracts, from canned hams and carcass beef to coconut oil, corn oil, cranberries, cucumbers, lard, Scotch whisky, sheep, tomato juice, tomato paste, and wine.
Book Chapter
Using Derivatives in Fixed Income Portfolio Management
This chapter shows how fixed income portfolio managers can use interest rate derivatives to control interest rate risk and how credit derivatives can be used to control credit risk. The contracts commonly used to control the interest rate risk of bond portfolios are Treasury bond and note futures contracts. The Treasury bond and note futures contracts are traded on the Chicago Mercantile Exchange (CME). Interest rate options can be written on a fixed income security or an interest rate futures contract. The former options are called options on physicals and the latter are called futures options. In a generic interest rate swap, the cash flows on the fixed component are known at the inception of the swap. There are two parties to a credit default swap (CDS), namely a credit protection buyer and a credit protection seller.
Book Chapter
Increased Access to Trading Oil
This chapter explores the increased access to trading oil. The most astounding example of the power of electronic access in the oil markets capable of tapping the new participant can be seen in the incredible growth and continuing influence of the Intercontinental Exchange, aka the ICE. It was not until the inevitability of online trade could no longer be denied that the NYMEX finally engaged with the Chicago Mercantile Exchange (CME) to list its products electronically on the CME's state‐of‐the‐art Globex platform in June 2006, giving participants a real choice of the floor or the screen. The incredible arc of NYMEX success and floor‐trading failure— can be accounted for by the immense increase in access to oil markets that began in earnest at the start of the new millennium.
Book Chapter