Transmission of futures prices to the Italian spot market : are there opportunities to hedge corn price risk?

Agricultural commodity prices have been recently characterized by a high degree of volatility, which results in a higher exposure to price risk for farmers. Among different commodities, corn represents the main crop produced in Italy. The study aims at estimating price transmission of three futures markets - specifically French (matif), US (cbot) and Hungarian (bse) - to Italian (Bologna) spot prices by the estimation of restricted Error Correction Models (ecm). This allows discussing the opportunity for Italian farmers to hedge price risk through the adoption of such risk management tools. Price transmissions were estimated based on a ten-year (2007-2016) and five-year (2012-2016) time series of weekly prices. For all the considered markets, the five-year model better explained Bologna spot prices and was thus considered for the subsequent evaluations. To assess a hypothetical unevenness in price transmission during the crop year, ecm has been estimated for a pre-harvest and post-harvest period.

The results highlight that the level of price transmission is higher for post-harvest period compared to the pre-harvest one. This is true for all the considered futures markets with the exception of the cbot, where pre-harvest model performed better than post-harvest one. Estimating a multi-market model, where Bologna spot price variation depend on all considered futures market, results suggest that Italian corn prices depend most on the matif and bse in the post-harvest period, while in the pre-harvest period, the cbot plays the main role in price transmission. [Publisher's text].