Because, they’re pretty good predictors of future prices (at least at the 3 and 12 month horizons) — better than a random walk, and better than a time series model. For empirics on corn, wheat and soybeans, see Chinn and Coibion, Journal of Futures Markets (2014).
The weak form EMH is typically not rejected for these agricultural commodities; hence, it is probably not too bad an approximation to assume that futures prices react to new information nearly instantaneously.
Why this paragraph is important here:
“energy and agricultural commodities hew more closely to the unbiasedness hypothesis. Futures contracts for these commodities also do relatively better in terms of predicting subsequent price changes or the sign of price changes than those of precious or base metals. And in some cases, futures prices significantly outperform random walk forecasts. Thus, futures prices for energy and agricultural commodities display significantly stronger predictive content and present less systematic deviations from those properties expected to hold in efficient markets than is the case for metals futures.”
Was it Bruce Hall that tried to claim farmers are very ill-informed as it they do not form expectations rationally? Maybe the empirical evidence says that they do form expectations rationally!
pgl, your sarcasm detector was turned off.
All I know is that I asked you a simple question which you refuse to answer. Again – your writing betrays you it appears. And you blame me?
Okay pgl, I’ll give you a hint.
“I was just in the “thumb” area of Michigan where I noticed a lot more corn and hay being grown and less soybeans, including my brother’s land. They must have been lucky to make that decision. pgl… hint, hint, hint No way they could have anticipated a commodity price drop because farmers are so ill-informed. Oh, wait, there was some news about that in early April before the planting season. Well, still just lucky.”
G e t i t y e t ? (I spelled it slowly for you)
@ bruce hall and @ CoRev
First, I wanna say I have always assumed pgl is quite a clever lady
Sarcasm is something that is sometimes awfully hard to decipher online. Then when you add that to the fact you’re interacting with a person who quite often says absurd and inane things (in this case you Bruce, but that could easily apply to CoRev and some others), it becomes near impossible to know if that person is being sarcastic. Because when a normal, intelligent person says dumb-a$$ thing “X”, you can knowingly assume it was humor. When you’re talking to someone who regularly sounds like Quagmire or Peter Griffin from “Family Guy”, then the range of things they think are “intelligent” and not sarcastic becomes MUCH WIDER.
According to the Farm Bureau report in April 2018, nationally farmers expected to increase soybean acres (89.9M acres in 2017 to 92.6M acres in 2018). However, like your brother, Michigan farmers expected to reduce soybean acres by 5.7%. So with regard to soybeans what you saw was in Michigan was in line with the Farm Bureau report, which ran against the national trend. OTOH, while you saw “a lot more corn” the Farm Bureau report projected no change in Michigan corn acres planted relative to 2017.
https://www.michfb.com/MI/Farm_News/Content/Crops/Michigan_farmers_buck_national_planting_intentions/
2slug, I think I said more corn and hay… but the Thumb area is just one part of the state so I’ll grant you that it might not be representative of the whole. Michigan farmers may have had an advantage of a later planting because April was so miserably cold and wet in Michigan which gave them a better chance to react to global political and supply conditions.
Regardless, pgl’s assumption that I considered farmer to be uniformed was… uninformed. In today’s agribusiness, farmers can’t afford to be wrong too often. The ones that are, well they are not farmers anymore.
Moses when you wrote “interacting with a person who quite often says absurd and inane things”, I was almost positive you were being self-deprecating.
@ bruce hall
What is a “uniformed” farmer?? I thought they just wore overalls and stuff.
Your “brother” must be nearly as dumb as you—because if he’s not bitching and moaning about having to reseed ground for a crop that is in lesser demand than what he had it seeded for before, then he’s pretty much a damned idiot. Not to mention the price of corn is dropping pretty fast right now. He probably wouldn’t be ready to hold a block party based on that market reality either. I suspect your “brother” bullcrap is a way to inoculate yourself from criticism on this blog when everyone can see you’re talking out of your A$$ on most of this. No one whose “brother is a farmer” would converse so ignorantly on the topic.
Bruce, pgl is so ignorant of the Ag business he couldn’t tell obvious sarcasm from (fill anything here.)
C’mon CoRev – we are still waiting for your excellent paper on the role of tariffs in the determination of agricultural prices. I’m sure it will included a well specified demand and supply model with rational expectations as well as a discussion of futures that blow away that paper Menzie published. Get busy as the American Economic Review is eager to publish it!
2slug, I think I said more corn and hay… but the Thumb area is just one part of the state so I’ll grant you that it might not be representative of the whole. Michigan farmers may have had an advantage of a later planting because April was so miserably cold and wet in Michigan which gave them a better chance to react to global political and supply conditions.
Regardless, pgl’s assumption that I considered farmers to be uniformed was… uninformed. In today’s agribusiness, farmers can’t afford to be wrong too often. The ones that are, well they are not farmers anymore.
Moses when you wrote “interacting with a person who quite often says absurd and inane things”, I was almost positive you were being self-deprecating.