Effects of Forward Sales on Spot Markets: Pre-Commitment Sales and Prices for Fresh Strawberries
Posted: 8 Mar 2010
Date Written: January 2010
Increasingly, agricultural markets are vertically coordinated. Often a thinning spot market coexists with coordinated transactions, raising the question of how private coordination affects the market as a whole. One of the greatest challenges when analyzing such market-level effects is obtaining information on private transactions. We utilize publicly available data to evaluate how informal contracts in the fresh strawberry market affect spot market prices using a generalized autoregressive conditional heteroskedastic in mean (GARCH-M) model. We find that these informal contracts increased spot prices, as argued by some industry members, while the effect on spot price volatility varied by production region.
Keywords: agricultural contracts, forward sales, GARCH-M, spot markets, strawberry market, vertical coordination., D4, L14, Q13
Suggested Citation: Suggested Citation