Date of Graduation

5-2016

Document Type

Thesis

Degree Name

Master of Science in Agricultural Economics (MS)

Degree Level

Graduate

Department

Agricultural Economics and Agribusiness

Advisor/Mentor

Andrew McKenzie

Committee Member

Michael Thomsen

Second Committee Member

Bruce Ahrendsen

Keywords

Pure sciences, Social sciences, Basis, Futures market, Non-linear, Spread trading, Stock-to-use ratio- WASDE

Abstract

The non-linear relationship between old crop – new crop year spreads in corn futures market and stock-to-use (S-U) ratios published by the United States Department of Agriculture is analyzed. Using a non-linear logarithmic smooth transition regression (LSTR) model, we capture asymmetric market behaviors in high and low S-U regimes. Capturing this relationship and understanding the non-linear aspects of the relationship is of interest of grain merchandizers and speculators in the market. A spread trading strategy is simulated for the sample period, January 1985 through April 2015, to determine if the non-linear relationship is a profitable arbitrage opportunity in the market.

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