Price formation of the salmon aquaculture futures market

ABSTRACT

This study examines price formation of the internationally traded salmon futures exchange. Analyzing data from 2006 to 2015, the study identifies the co-integration relationship between the spot market price and 1–6-, 9- and 12-month futures contract prices. With exception of the 12-month maturity futures price, the unbiasedness hypothesis is shown to hold, thus evidence of risk neutrality and efficiency among the co-integrated pairs. Further, it is evident that the spot price provides leadership role in the price discovery function for the 1-, 2- and 6-months futures contract. On the contrary, the 3-, 4-, 5-, 9- and 12-months futures contracts provide the expected leadership role in the price discovery function, a case that supports a matured market that can be considered a necessary price risk management tool. The mixed finding is an indication of a maturing or near matured futures market. Analysis of the term structure of futures volatilities reveal that the shorter the length of the futures contract, the more volatility there is. This is because salmon prices exhibit short-term cyclical and seasonal patterns like other agricultural commodities. As such, salmon producers will be better off hedging in far month futures contracts, ceteris paribus.     

Behaviour of price transmissions in vertically coordinated markets: The case of frozen black tiger shrimp (Penaeus monodon)*

Abstract

This study analyses the behaviour of the price transmission process for the leading cultured shrimp species, black tiger shrimp (Penaeus monodon), in both forward and backward directions between Thai and Indonesian shrimp packer markets and the Japan Tokyo wholesale market. The bivariate cointegration approach using the Engle‐Granger two‐stage estimation procedure is applied in this study. The results show that Tokyo wholesale prices appear to have stronger backward influences on the formation of overseas contract prices used by Japanese shrimp importers in the Thai and Indonesian shrimp packer markets. In addition, there is a tendency for the speed of price transmissions in the long term to increase with increasing size class (from 26 to 30–21–25 and 16–20 counts per pound) of black tiger shrimp, regardless of estimation specification in the direction of price transmissions and the shrimp country of origin.     

The spot-forward relationship in the Atlantic salmon market

This study examines the Fish Pool salmon futures contract with respect to how well the market performs in terms of the futures price being an unbiased estimator of the spot price and whether the market provides a price discovery function. Using data for 2006–2014 and with futures prices with maturities up to 6 months we find that spot and lagged futures prices are cointegrated and that the futures price provides an unbiased estimate of the spot price. We also find that, with the exception of the front month, that the causality is one-directional. The spot prices lead futures prices between 1–6 months maturity. Hence, while the spot and lagged futures prices are unbiased estimates, we do not find support for the hypothesis that futures prices provide a price discovery function. Rather, it seems that innovations in the spot price influence futures prices. This finding is not uncommon in new and immature futures contracts markets. Hence, the salmon futures market is still immature and has not yet reached the stage where futures prices are able to predict future spot prices.     

Hedging salmon price risk

Salmon price is highly volatile and hard to predict, which obscures planning decisions and raises financing costs for market participants. This study considers hedging the spot price uncertainty with salmon futures contracts. It uses a new framework of hedging under square loss, consisting of a new objective function, an optimal hedge ratio and a measure of hedging effectiveness. The new framework aims at minimizing the expected squared forecast error. It generalizes the classical minimum variance hedging as it relaxes the assumption of known expected prices. The salmon futures contracts deliver satisfactory hedging performance, albeit constrained by low liquidity. Therefore, I suggest holding the contract through maturity rather than closing the futures and the spot positions simultaneously. This strategy alleviates the liquidity issue and saves transaction costs. All things considered, hedging with salmon futures is a moderately effective way of handling the salmon price uncertainty.     

Development of aquaculture financial planning system

Abstract

Economically efficient feeding levels in intensively stocked ponds might be below minimum biological feeding requirements under adverse market conditions. A catfish production function that estimated relationships between yield and stocking and feeding rates was used as the basis for estimating production relationships. Feed price boundaries were developed that allowed the feeding rate to exceed the minimum biological level but still reflected economically efficient rates over a range of catfish prices and producer risk preferences. At higher stocking densities (20,000/ha), the feed price upper bound is lower than at lower stocking densities. Producers stocking at higher rates will be less likely to maximize profit and meet minimum biological feeding requirements as feed price increases than those producers stocking at lower rates. However, if feed prices exceed the upper bounds calculated in this paper, producers should engage in feeding only at levels necessary to meet farm financial and cash flow obligations until such time as the feed price decreases.     

Risk of exceeding bioeconomic limit reference points in shrimp aquaculture systems

Abstract

Designing intelligent management strategies for shrimp aquaculture systems require recognising the uncertainty and risks associated with different processes of aquaculture production. To account for natural variability and other sources of uncertainty, estimates of appropriate aquaculture bio‐economic indicators are needed to re‐evaluate periodically the production system and establish new reference points and corresponding management strategies. This paper concentrates on this aspect of the management process and presents a simple classification of indicators and reference points for aquaculture production systems. The uncertainty causing variability in the estimated values of bio‐economic parameters is incorporated through the use of Monte Carlo analysis to estimate the probability of exceeding limit reference points. To illustrate this process, the risks (i.e. probabilities of exceeding bioeconomic limit reference points) associated to alternative timing of harvesting decisions were estimated by randomly generating uncertain prices and natural mortalities with the appropriate probability density functions and corresponding variance. Alternative approaches to deal with risk and uncertainty in data limited management contexts are discussed.     

Economic evaluation of mud crab farming under different production systems in India

Abstract

Apart from penaeid shrimp culture, crab farming and fattening and other several diversified aquaculture practices are now emerging as viable ventures in India. About 11 types of crab products are being exported from India with an average unit value realization of US$ 3.73 kg^?1, pinpointing its importance in the foreign exchange earnings. An economic evaluation of mud crab culture, fattening and fattening with composite culture of shrimp/finfish has been attempted in this paper. The major operating cost was that of seed and it was higher for crab fattening (87% of the total operating cost). Feed costs were very low compared to that of shrimp farming. Annual profit obtained was US$ 22812.5 ha^?1 year^?1 for culture and US$ 30820.8 ha^?1 year^?1 for fattening. Economic indicators such as net profit, rate of return, pay back period and breakeven price indicate that crab fattening/culture is much more profitable than any other coastal aquaculture operations currently in practice, provided hatchery production is established in the country to ensure adequate supply of mud crab seeds.     

An econometric estimation of Japanese shrimp supply and demand during the 1990s

Abstract

A simultaneous‐equation model of the supply and demand of shrimp in Japan is constructed, and sensitivity analyses are conducted to measure the effects of changing exchange rates and the stock holdings of shrimp. Using monthly statistics from January 1990 to December 1997, the Japanese own‐price elasticity of supply is found to be inelastic and has a less important effect than the beginning stocks factor. The Japanese demand for shrimp is also found to be price‐and income‐inelastic. The beginning of stock holdings is more sensitive to Japanese shrimp demand than the import price and income. The result of seasonality analyses shows that Japanese shrimp demand also depends on cultural factors.     

Forecasting weekly salmon prices: Risk management in fish farming

Abstract

Production of farmed salmon has increased substantially during the last decade. Most of the salmon production is sold spot, resulting in large price fluctuations both for the producer and for the exporter. No derivative markets exist; consequently, no one can hedge prices. If prices could be forecasted within reasonable confidence bounds, risk would be reduced. This study used six easily applicable procedures to forecast weekly producer prices for salmon. The procedures tested were Classical Additive Decomposition (CAD), Holt Winters Exponential Smoothing (HW), Auto Regressive Moving Average (ARMA), Vector Auto Regression (VAR) and two different naïve models: post‐sample predictive accuracy was evaluated. Results indicated that the CAD model forecasted the direction of price movements best, whereas the VAR model performed best according to accuracy measures.     

Economics of risk and uncertainty of alternative water exchange and aeration rates in semi‐intensive shrimp culture systems

Abstract

Reducing water exchange in shrimp aquaculture to minimize discharge of pollutants is a search for sustainability. In desert regions, like most of northwest Mexico, low water exchange must be complemented with artificial aeration to compensate for low levels of oxygen in warm and highly saline water. The economic yield of a low‐water‐exchange production system is compared against yield from a typical water‐exchange‐without‐aeration system for Penaeus vannamei culture. The difference between two systems is centered on pumping and aeration rates for a 100 ha semi‐intensive farm in northwest Mexico.

A bioeconomic model was built to compare the systems. Risk analysis is adopted to account for uncertainty of seed price, shrimp growth rate, survival rate, and shrimp prices.

The typical system was slightly more profitable than the low‐water‐exchange, aerated system. The latter used less electricity than the former in all of the three mortality‐rate scenarios. However, the difference in profitability is so small that for practical purposes both production systems provide similar economic yield. For a typical system, the probability of reaching a positive net present value (NPV) is high, therefore under the assumed risks, a 100 ha semi‐intensive shrimp farm in northwest Mexico is a good investment choice.     

修正大豆期现货价格的长短期关系：一个结构突变理论的应用

本文应用z—A方法和Perron方法等结构突变检验以及Gregory—Hansen变结构协整方法,对大豆期货和现货价格之间是否存在长短期均衡关系进行重新研究。研究发现。样本期内大豆期货和现货均发生了两次结构突变。通过考虑是否发生结构突变的对比分析表明,未考虑结构突变时大豆期现货不存在协整关系,考虑结构突变时二者则存在长期均衡关系和短期动态调整关系;考虑结构突变向量的误差修正模型（EcM）的预测精度比未考虑结构突变时高出5．5％,充分证实了结构突变在处理时间序列数据时的必要性和有效性。     

Aquaculture and international trade

Abstract

In contrast to the stabilization or decline of wild fishery harvests, aquaculture's contribution to the world fish supply is steadily increasing. Aquaculture has begun to have a major influence on the trade of export‐orientated species such as salmon and shrimp. This paper reviews the role of aquaculture in international trade and the research which has been conducted to examine its influence. Despite the growing significance of aquaculture on international trade, especially for shrimp and salmon, formal analysis of the shrimp trade is sparse, only moderate for salmon, and essentially nonexistent for other species. This paper also presents specific examples of how aquaculture has played an important role in international trade. These include an examination of: (1) the influence of shrimp aquaculture and trade on the development of a shrimp futures contract; and (2) the countervailing duty and antidumping case against the Norwegian farmed salmon industry.     

Price volatility dynamics in aquaculture fish markets

Abstract

In this paper, a time-varying student-t copula is used to capture information on price volatility dependence in the short-, medium-, and long-run horizon in the US market for frozen and fresh salmon, trout, tilapia and catfish. Using monthly data from July 1992 to March 2017, the volatility dynamics for these aquaculture species are assessed. The analysis allows indicating significant differences in the volatility relationships, depending on time-frequency. While short-run volatility has limited dependency, there is significant dependency in both the medium- and long-run, indicating that market integration is stronger in the long-run. The information is particularly important to buyers and producers utilizing the futures markets, as contracts are typically traded using a set of frequencies, and may help them manage and reduce price risk.     

Nonparametric estimation of returns to investment in Honduras shrimp research

Abstract

Economic returns to the investment in shrimp research in Honduras by Auburn University researchers, as a part of the Pond Dynamics/Aquaculture Collaborative Research Support Program (1993 to 1998), were estimated using a nonparametric approach. A survey of shrimp growers in Honduras provided data on yield, input application, and prices for their first year of production and for the year 1997. Research investment data included funding from both public and private sectors. Results showed that total factor productivity indices increased from 1995 to 1997 indicating technical progress due to research. When both private and public investment were considered, the internal rate of return to the investment in research was 46%. However, the internal rate of return to public‐sector investment alone was above 6,681%. This indicated that the public funds invested in shrimp research in Honduras have been leveraged effectively with private‐sector capital to generate technological progress.     

PRICE RELATIONSHIPS IN PHILIPPINE MILKFISH MARKETS: UNIVARIATE AND CAUSALITY ANALYSIS

ABSTRACT

Uncertainties and lack of information on milkfish product prices, along with production-related problems with inputs, generally constrain efficient resource use in milkfish grow-out operations. Milkfish growers complain of fluctuating product prices such that when output price is low, they refrain from investing in inputs and technologies recommended to boosts production. The industry wants to know the state and behavior of milkfish prices. ARIMA models showed instantaneous price relationships between monthly wholesale prices in Manila and the regional producing areas. The cross-correlations of the error terms of the ARIMA models showed that prices in Manila are related with Lucena, Dagupan, Iloilo, and Zamboanga prices, but not with Cebu. Seasonal price indexes are higher (> 1) from December to May and lower (< 1) from June to November. Milkfish grow-out operators may benefit from understanding these patterns of price movements.     

Effects of inter‐country aquaculture technology diffusion rates on international shrimp market shares

Abstract

Technology innovation and diffusion in shrimp aquaculture has resulted in increased quantity and supply of shrimp to satisfy expanding consumer demand. Logistic growth curves are estimated to depict the rate of diffusion of shrimp aquaculture technology throughout the major shrimp producing countries. A time series/cross sectional model is applied to 1985–1991 and 1995–1999 production data to evaluate factors influencing shrimp production growth rates. Calculated market shares for each country indicate that operating costs, lagged shrimp price, number of hectares in production, lagged export quantity of shrimp, and market structure influence the aquaculture technological diffusion rates and shrimp produced, and suggest that countries that incorporate technologies into their production system benefit the most from increased market share.     

TESTING FOR MARKET INTEGRATION AND THE LAW OF ONE PRICE IN WORLD SHRIMP MARKETS

Using import price data from Japan, United States, and the European Union, shrimp price movements in these markets were evaluated to test if it denotes an integrated world market for shrimp. Cointegration techniques were utilized to investigate if prices in these markets share a common stochastic trend and if the law of one price holds. Results indicated a strong link amongst Japanese, American, and European markets. The results on the aggregated shrimp markets were checked against the results at a more disaggregated level. Data from wholesale markets in Tokyo, New York, and Europe for specific shrimp products confirm the integrated nature of shrimp markets. Evidence also supports the law of one price in shrimp markets.     

RISK ASSESSMENT OF A SHRIMP AQUACULTURE INVESTMENT IN FLORIDA

A stochastic simulation model was developed to examine the impact of risky economic variables on the profitability of a small-scale shrimp farm. Sources of risk included input and output prices, random-kill events, and hurricane damages. Success was measured using the probability distribution of the net present value (NPV). A baseline model that assumed capital costs of $493,993, a stocking density of 100 shrimp per m², a harvest survival of 80%, and a discount rate of 8% failed to generate a positive NPV. Subsequently adding a $0.66 price premium also failed to establish a positive NPV. Further reducing initial capital costs by 50% resulted in a 2% probability of a positive NPV. Incrementally reducing the discount rate generated increasingly positive NPV probabilities ranging from a 9% probability of success (7% discount rate) to a 94% probability of success (3% discount rate). Additional analyses suggested that probabilities of financial success were also sensitive to random-kill and hurricane events.     

Changes in Biochemical Compositions and Quality of White Shrimp (Litopenaeus vannamei) During Storage

ABSTRACT

To understand biochemical characteristics, storage stability, and freshness indicators of white shrimp (Litopenaeus vannamei), changes in extractable nitrogenous compounds, microbial count, and sensory rating of white shrimp during storage at 25 and 4°C were investigated. Free amino acids showed a slow increase during storage at 25°C, but no obvious change was found at 4°C. Adenosine triphosphate (ATP) and adenosine diphosphate (ADP) were found at initial stage and decreased rapidly after storage. Both inosine 5′-monophosphate (IMP) and adenosine monophosphate (AMP) increased and then decreased during storage. Inosine, hypoxanthine, and the K-value gradually increased with time. The levels of total volatile basic nitrogen (TVB-N), NH₃, and trimethylamine (TMA) of white shrimp increased with storage time at 25 and 4°C. The TVB-N, NH₃, TMA, inosine, hypoxanthine, and K-value could be considered as freshness indicators of white shrimp during storage. However, the total plate count did not corroborate the acceptability recommended limits for white shrimp during storage. The sensory evaluation, associated with TVB-N, TMA, and K-value, showed the quality was unacceptable after 6 h storage at 25°C and 7 days at 4°C.