How Government Policies Affect the Relationship between Polish and World Wheat Prices
35 Pages Posted: 20 Apr 2016
Date Written: April 1997
Abstract
Government intervention is the main reason for the low correlation between cash prices for Polish wheat and wheat futures prices in Chicago and London. Polish government policies reduce incentives for Poland`s private sector to use existing wheat futures contracts in foreign exchanges to hedge against price risks and impede the development of a Polish wheat futures exchange.
Cash prices for wheat in Poland are not closely related to futures prices in Chicago and London, for several reasons: differences in seasonality, fluctuations in exchange rate, poor dissemination of information in Poland, and most important the Polish government`s intervention in wheat markets.
Polish wheat prices generally move to expected intervention prices (set by ARR, the agency for agricultural markets) and then stay there until the next intervention level becomes known. The exception was in 1994/95, when sharply higher world prices raised prices in Poland.
A wheat futures exchange in Poland could give the private sector a tool for hedging against price risk, improving efficiency and price discovery in Poland. It would be difficult to develop, however, under present interventionist policies. This situation could be improved by reducing the protection of prices and by making any intervention rules-based (reducing uncertainty about policies).
Should intervention be reduced or rationalized, the next question is whether Poland needs its own wheat futures exchange or whether Poland's private sector can use futures exchanges in London and Chicago to hedge against risk. The answer to that question is not an easy one.
This paper - a product of the Commodity Policy and Analysis Unit, International Economics Department - is part of a larger effort in the department to analyze commodity pricing policies.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Capital and Trade Flows in Europe and the Impact of Enlargement
By Claudia M. Buch and Daniel Piazolo
-
Does the East Get What Would Otherwise Flow to the South? FDI Diversion in Europe
By Claudia M. Buch, Robert M. Kokta, ...
-
Economic Integration, Similarity and Convergence in the EU and Ceecs Trade Structures
By Luca De Benedictis and Lucia Tajoli
-
Price Support at Any Price? Costs and Benefits of Alternative Agricultural Policies for Poland
-
Investment Behavior in Dynamic Computable General Equilibrium Models for Transition Economies
-
What Gravity Models Can Tell Us About the Position of German FDI in Central and Eastern Europe
By Christina Borrmann, Rolf Jungnickel, ...