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Is Chinese or American maize price effective for trading and policy-making reference?

Yunxian Yan (Economics and Management College, Jilin Agricultural University, Changchun, China)
Lu Tian (Economics and Management College, Jilin Agricultural University, Changchun, China)
Yuejie Zhang (Economics and Management College, Jilin Agricultural University, Changchun, China)

China Agricultural Economic Review

ISSN: 1756-137X

Article publication date: 26 August 2014

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Abstract

Purpose

The purpose of this paper is to discover an effective maize price for trading and policy-making reference by assessing the price transmission of the US spot and futures maize prices to Chinese counterparts.

Design/methodology/approach

The authors apply a systematic, quantitative method to analyze the integration between US and Chinese maize markets. Based on the residuals of the variables through error correction model, the directed acyclic graph (DAG) among six price variables is conducted. With consideration of the dependence on and direction of six price variables, the variance decomposition of each variable is calculated.

Findings

This paper shows that the vertical price transmission passes from wholesale price to farm-gate price. The horizontal price transmission ranges from spot price to futures price at the domestic market and from the American spot price to domestic spot price, from the American spot price to domestic futures price and from the American futures price to domestic futures price. The American maize spot and futures prices, and in particular the spot price, have greater effects on domestic maize prices contemporaneously. It also indicates that the American spot price is the leader price in the long run at both maize markets.

Originality/value

This paper contributes by using the DAG method in this paper. It also contributes by helping policy makers and market participants find the leading prices and offers insight into ways of gaining power of price setting in the maize market.

Keywords

Acknowledgements

JEL Classifications — Q11, Q13

The authors would like to thank the anonymous referees for valuable comments and suggestions. This work is supported by Humanities and Social Science Project under the Ministry of Education of PRC (No. 08JA790055 and 11YJC790227).

Citation

Yan, Y., Tian, L. and Zhang, Y. (2014), "Is Chinese or American maize price effective for trading and policy-making reference?", China Agricultural Economic Review, Vol. 6 No. 3, pp. 470-484. https://doi.org/10.1108/CAER-05-2013-0080

Publisher

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Emerald Group Publishing Limited

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