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

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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