Feasibility,forward pricing and returns: Recent developments in the literature on futures trading

In recent years the feasibility conditions for market establishment and the information value of futures markets have been central issues in futures market research. This paper first discusses recent developments under the heading of feasibility conditions, including the obsolescence of the commodity characteristics approach and the search for a comprehensive framework. Second, futures markets collect and disseminate information, and in so doing they are centres of rational price formation, and the forms of tests that have been developed to ascertain whether they perform this function efficiently are considered. Futures markets also perform a forward pricing function: their prices may be regarded as market anticipations of subsequent cash prices. 1970s' literature has addressed this question, finding differences in performance between continuous and non-continuous inventory commodities. This paper discusses the reasons for and economic implications of these results.     

Testing the international linkage in the platinum-group metal futures markets

This study tests whether an international market exists in the platinum-group metal (PGM) futures markets. For this purpose, we tested the law of one price (LOP) and the causality between the U.S. and Japanese platinum and palladium futures markets. We also performed the test when structural breaks are considered. Long-run price relationships were found in both platinum and palladium markets but the LOP only sustained in the palladium market. The causality test revealed that it is the U.S. market that leads the price to transmit information between the U.S. and Japanese markets. Structural breaks had large impacts on the test results, suggesting that incorporating breaks is important when investigating the international price linkage in the PGM futures markets.     

Future markets: An alternative for stabilizing secondary materials markets?

The authors present an economic justification for extramarket intervention in the markets for secondary materials and briefly discuss the possible impacts of futures trading on the cash market for a commodity. These impacts are applied to the markets for secondary materials and the potential effects are assessed. They conclude with a rationale for public participation in initiating a scrap futures market.     

The significance of futures trading in minerals and oil

Futures trading has been introduced for aluminium and oil in recent years and the range of contracts available on various minerals and oil products continues to widen. Concern has been expressed by producers of a number of minerals, including nickel and platinum, that the introduction of futures trading may introduce a speculative element to price determination that will create inappropriate or excessively volatile prices. It is the purpose of this article to analyse the role of futures trading in relation to trade in underlying commodities in general and especially for trade in minerals and oil. Evidence from oil and platinum markets, in particular, is adduced and examined in the light of earlier evidence of the influence of futures trading on underlying commodities. The contribution of futures trading is examined in detail and conclusions are reached on the significance of futures trading for minerals and oil.     

Market transparency in the international aluminium industry

Transparency requires many buyers and sellers with transactions executed at arms length in an open environment. The paper highlights the influence on transparency of the ownership and production structure; price formation; and the nature of the product. The world aluminium industry is analysed in light of the above in view of the emergence of terminal markets for aluminium. The disjuncture between the interests of physical traders and those speculating futures contracts is analysed in terms of the latter's effect on investment. Finally, the benefits and difficulties associated with terminal markets are explored, trends in the aluminium industry reviewed, and a framework within which to cope with aluminium as a commodity is proposed.     

Investor demand and spot commodity prices

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume?On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times.On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.     

Forward pricing and efficiency in the silver market

If futures prices ‘fully reflect’ all available information, then these prices may be interpreted as market anticipations of spot (cash) prices at the delivery date of the futures contract. This hypothesis, which has tended to find most support among established markets for storable commodities, is investigated for the Chicago silver futures market. Using instrumental variable estimation and a joint (χ²) test, the unbiased prediction hypothesis is rejected, and a tentative explanation is offered for this outcome. This result, however, does not necessarily imply that the market is inefficient, and two tests of the weak form efficient markets hypothesis suggest that, while there is some slight dependence in past prices, this is only marginally more than would be expected from normal sampling variation.     

ALTERNATIVE FUTURES USING THE WOLLMAN-BONEM MODELS1

Alternative futures are defined to be mutually consistent alternative combinations of assumed sets of future conditions. Alternative futures are employed in conjunction with the Wollman-Bonem model to project future water use. The model solutions under different alternative futures provide an indication of the direction and relative magnitude of changes in water use, both in quantity and quality, that may result from changes in policy-influenced variables, technology, and other data. The Wollman-Bonem model is employed in this paper as a tool to illustrate the alternative futures concept. The model can best be cast as an economic model. The model solutions are not given as a set of formal projections, but as various possible water-use-over-time curves. This should aid in disspelling the erroneous idea that it is possible to make distant projections of water use as a single curve. Multiple curves suggest that water use is really a function of many variables.     

Linking Models of Land Use,Resources, and Economy to Simulate the Development of Mountain Regions (ALPSCAPE)

We present a framework of a scenario-based model that simulates the development of the municipality of Davos (Swiss Alps). We illustrate our method with the calculation of the scenario for 2050 “Decrease in subsidies for mountain agriculture and liberalization of markets.” The main objective was to link submodels of land-use allocation (regression-based approach), material and energy flows submodels (Material and Energy Flux Analysis), and economic submodels (Input–Output Analysis). Letting qualitative and quantitative information flow from one submodel to the next, following the storyline describing a scenario, has proven to be suitable for linking submodels. The succession of the submodels is then strongly dependent on the scenario. Qualitative information flows are simulated with microsimulations of actor choices. Links between the submodels show different degrees of robustness: although the links involving microsimulations are the weakest, the uncertainty introduced by the land-use allocation model is actually advantageous because it allows one possible change in the landscape in the future to be simulated. The modeling results for the scenario here presented show that the disappearance of agriculture only marginally affects the region’s factor income, but that the consequences for the self-sufficiency rate, for various landscape-related indicators and ecosystem services, and for the economy in the long term may be considerable. These benefits compensate for agriculture’s modest direct economic value. The framework presented can potentially be applied to any region and scenario. This framework provides a basis for a learning package that allows potential detrimental consequences of regional development to be anticipated at an early stage.     

International commodity transactions : The role of the commodity futures trading commission

The creation of so-called ‘financial’ futures contracts in the USA has spurred the growth of futures trading by other countries, including the UK. The increased expansion of commodity futures trading has also led to heightened regulatory concerns throughout the world. The USA has been especially aggressive in asserting jurisdiction and establishing regulatory controls over persons dealing in the US markets. The complexity of the regulations adopted is compounded by the fact that they are often directed at specific instruments, while similar instruments are not given comparable regulatory treatment. This article discusses the growth of futures trading worldwide, as well as regulatory concerns and requirements existing in the USA.     

When sustainable may not mean just: a critical interpretation of urban water consumption decline in Barcelona

In this paper, we document and analyse the recent decline (2007–2013) in domestic water consumption in Barcelona. The postulates of ecological modernisation and market environmentalism celebrate these declines as an example of sustainable development, thanks to the combination of more efficient technologies and economic incentives. However, these interpretations ignore the new framework of social relations introduced by technologies and markets and take environmental improvements as homogeneous and universal regardless of distributional issues. Therefore, it would be perfectly possible to achieve optimal environmental situations in the context of deteriorating social conditions, particularly in terms of access to basic resources by the most disadvantaged. We explored the relationships between declining domestic water consumption and the uneven impact of the economic crisis on Barcelona’s urban geography. We found that the alleged increase in environmental sustainability that follows decline in resource use translates into highly uneven social impacts in terms of both accessibility and consumption. These results show that water flows have profound political dimensions and that water justice in terms of distributional costs and benefits but also in terms of recognition and participation of the less well-off should be a fundamental component of future urban water policies in this area.     

Reply: Investor demand and spot commodity prices

In a recent article (Tilton, Humphreys, and Radetzki, 2011), Tilton et al. argue that even when investor stocks are declining an increase in investor demand can cause a commodity's price to rise. They contend that this conclusion, which is based on two hypothetical examples, is both contrary to conventional wisdom and counter-intuitive. In my comment on the article (Olle Östensson, 2011), I challenged this finding. In a reply to my article, Tilton et al. maintain that their original finding is valid: investor demand can be driving commodity prices higher even when stocks are falling. In my present reply, I contend that their argument with respect to the first example confuses the actions of a minority of investors with those of all investors and is well accommodated within the framework of traditional theory. I further argue that their second example rests on an assumption regarding investor behavior that is unproven and that in any case falls outside the framework of analysis of futures markets.     

Enabling Sustainable Agro-Food Futures: Exploring Fault Lines and Synergies Between the Integrated Territorial Paradigm,Rural Eco-Economy and Circular Economy

What kind of futures does agro-food imaginaries enable and who can get involved in the making of agro-food futures? In this respect, what can the increasingly influential idea of circular economy potentially offer in terms of enabling more sustainable agrofood futures? We approach this task by first outlining the interconnected challenges that the agro-food system is facing related to environmental degradation, economic crises and social problems. Then we consider the way these challenges are being addressed in agro-food studies. We argue that agro-food research in recent years has seen important contributions in relation to studies of alternative food networks and the “quality” turn. These research agendas have challenged the current logic of the food system in terms of offering alternative visions of future development. We highlight two examples from the literature—the eco-economy and the integrated territorial agri-food paradigm—that develop broader frameworks for rethinking the future of the agro-food system and which have distinguished themselves in contrast to the industrialized and globalized conventional food system. We find that with respect to reorienting and reconfiguring economic structures and relations all three approaches share a common goal, but circular economy stands out in relation to the actors that are included by, for example, emphasizing collaborations and partnerships with extant agro-food businesses. Also with regards to scalar politics, it would be prudent to consider the potentials offered by the increasingly influential ideas around circular economy.     

Climate Change and National Self-Interest

Mitigation of climate change is often described as a tragedy of the commons. According to this theoretical framework, it is collectively rational for present-generation countries to mitigate climate change, but not individually rational to do so. It is rather in national self-interest to ‘free-ride’ on the mitigation actions of other countries. In this paper, I discuss two arguments criticizing this view. According to these arguments, it is in most cases individually rational for present-generation countries to mitigate, i.e., it is in their national self-interest. The first argument focuses on national self-interest in terms of economic efficiency, the second on national self-interest in terms of national security. I conclude that the critical arguments to a large extent are tenable, but that they seem to underestimate the significance of those cases in which it is not in national self-interest to mitigate climate change. In these cases the tragedy of the commons framework is still applicable.     

Impact of groundwater markets in India on water use efficiency: a data envelopment analysis approach

In the hard rock areas of India, overdraft of groundwater has led to negative externalities. It increased costs of groundwater irrigation and caused welfare losses. At the same time informal groundwater markets are slowly emerging and are believed to improve water distribution and to increase water use efficiency in the irrigation sector. These claims are evaluated in this study. For this purpose data was collected from a sample containing three different groups of water users: water sellers, water buyers and a control group of non-traders. First the socio-economic characteristics of these groups are compared. Then the efficiency of water use of the three groups is studied using Data Envelopment Analysis. The results indicate that groundwater markets provide resource poor farmers access to irrigation water, giving them the opportunity to raise their productivity. Water buyers are furthermore shown to be most efficient in their water use, while water sellers are also shown to be more efficient than the control group. The differences in efficiency between the groups are statistically significant. The demonstrated potential of groundwater markets to improve the efficiency of water use and to increase equity in resource access should be taken into account by the Indian government when deciding on their attitude towards the emerging groundwater markets.     

Environmental management in an international consumer goods company

Many management processes and tools can provide companies with information to support their environmental decision making. Risk assessment, environmental auditing, life cycle assessment and environmental reporting are but a few examples. Each of these has typically evolved independently as the need for it has arisen. Today, however, this abundance of tools can lead to confusion: What is the exact objective of each tool? How do they differ? Are some ‘better’ than others? Should they be used in parallel, sequentially or in place of each other? More importantly, how do they fit together into a coherent environmental management framework that will ensure sound environmental and economic decision making in a company? This paper seeks to answer these questions. It describes the overall environmental framework that has been developed internally within Procter & Gamble and which allows the company to make coherent economically and environmentally sound decisions, in both the short- and long-term.     

Can Export-Oriented Aquaculture in Developing Countries be Sustainable and Promote Sustainable Development? The Shrimp Case

Industrial shrimp farming has been promoted by international development and financial institutions in coastal indebted poor countries as a way to obtain foreign exchange earnings, reimburse external debt, and promote development. The promotion of the shrimp industry is a clear example of a more general trend of support of export-oriented primary products, consisting in monocultures of commodities, as opposed to the promotion of more diverse, traditional production directed to feed the local population. In general, it is assumed that export-oriented aquaculture and agriculture, in a framework of liberalization policies, facilitates economic growth and this is associated with poverty reduction and the improvement of food security. However, it has been shown that the promotion of export-oriented production, mostly in the hands of big corporations, can have detrimental consequences for the livelihoods of local populations and the environment. As a result, international institutions, NGOs, and the industry aim to minimize these impacts by promoting sustainable export-oriented production. But some impacts may remain, since the main issue is the primary focus on international deregulated markets and the search for cheap primary products. To illustrate the relationships between the mainstream concept of development, the environmental and social impact of industrial farming systems, and the promotion of export-oriented production in developing countries, this article analyzes the case of the shrimp aquaculture industry.     

转变观念,面向市场,提高农业综合开发整体水平

在计划经济体制下.农业不是也不可能成为一个独立产业,其结果只能是社会效益可观、经济效益甚微甚至倒贴,吃苦的是农民。社会主义市场经济体制的逐步确立,为农业走向市场带来了希望,首要的是确立市场经济观念。丘陵地区大搞农业资源的综合开发是使农业走向市场的重要途径,综合开发上了水平,实现“三高”农业就大有希望。搞农业综合开发的途径很多,但都必须以市场为导向、科技为先导、经济效益为中心,大搞农业产加销一条龙、贸工农一体化是提高农业综合开发整体水平、实现“三高”农业的必要途径。     

Managing carbon emissions in China through building energy efficiency

This paper attempts to analyse the role of building energy efficiency (BEE) in China in addressing climate change mitigation. It provides an analysis of the current situation and future prospects for the adoption of BEE technologies in Chinese cities. It outlines the economic and institutional barriers to large-scale deployment of the sustainable, low-carbon, and even carbon-free construction techniques. Based on a comprehensive overview of energy demand characteristics and development trends driven by economic and demographic growth, different policy tools for cost-effective CO₂ emission reduction in the Chinese construction sector are described. We propose a comprehensive approach combining building design and construction, and the urban planning and building material industries, in order to drastically improve BEE during this period of rapid urban development. A coherent institutional framework needs to be established to ensure the implementation of efficiency policies. Regulatory and incentive options should be integrated into the policy portfolios of BEE to minimise the efficiency gap and to realise sizeable carbon emissions cuts in the next decades. We analyse in detail several policies and instruments, and formulate relevant policy proposals fostering low-carbon construction technology in China. Specifically, Our analysis shows that improving building energy efficiency can generate considerable carbon emissions reduction credits with competitive price under the CDM framework.     

Fusing strategic risk and futures methods to inform long-term strategic planning: case of water utilities

Risks and futures methods have complementary strengths as tools for managing strategic decisions under uncertainty. When combined, these tools increase organisational competency to evaluate and manage long-term risks, improving the flexibility and agility of the organisation to deal with gross uncertainties. Here, we set out a framework to guide the assessment of strategic risks for long-term business planning, based on its application at Portugal’s largest water utility, Empresa Portuguesa das Águas Livres. Our approach extends strategic risk assessment by incorporating scenario planning—a futures approach used to help the utility move beyond single point forecast of risks to focus on critical dimensions of uncertainty that are fundamental to the resilience of corporate objectives and their vulnerability to external pressures. We demonstrate how we combine two complementary approaches—risk and futures—and use them to assess (i) how a set of baseline strategic risks for a water utility evolves under alternative futures, (ii) the aggregate corporate-level risk exposure, and (iii) the process and responses needed to manage multiple, interdependent strategic risks. The framework offers a corporate approach to evolving strategic risks and improves a utility’s (i) knowledge of uncertainties, (ii) ability to assess the impacts of external developments over long time horizons and the consequences of actions and (iii) degree of flexibility to adapt to possible future challenges. The framework supports risk managers in their long-term strategic planning, through the appraisal and management of multiple, interdependent long-term strategic risks and can be replicated in other organisational contexts to bridge operational and corporate perspectives of enterprise risk.