Research Reports
Analysis of Grain Market and Establishment and Operation of World Grain Market Information System
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AuthorSung, Myunghwan
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Publication Date2012.12.30
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Original
Background of Research
Recently, world grain price surged again, thereby placing a big burden to the Korean economy. The increase of grain price leads to the decrease of imports which creates an imbalance in domestic demand and supply while the related food industry as a whole faces more difficulties. It also has a great pressure on the inflation. Moreover, the expansion of volatility in such a period makes traders difficult to decide when to buy or sell grains due to uncertainty of price.
As a countermeasure to price volatility, the necessity of hedging through the international commodity futures market has been repeatedly suggested and, in particular, since it is suspected that the financialization of the international commodity futures market owing to a massive inflow of financial capital is a cause of the surge and volatility of grain price, it is necessary to analyze it thoroughly and prepare a countermeasure. On the other hand, the level of utilization of the commodity futures market of Korea is insignificant and mostly the importers are exposed to the price volatility. Therefore, for the utilization of commodity futures by Korean importers, it is necessary to find out the cause that hampers the utilization of commodity futures and to prepare a measure to vitalize it. Moreover, there was no outlook system that can analyze the data on overseas grain markets systematically and provide futures market information to the government and related organizations. This study introduces『World Grain Market Information System』which was established and has been operating since this year.
Method of Research
The background of the recent surge and expansion of volatility of world grain price is that firstly, medium and long-term factors of demand and supply are changed so that the increase ratio of demand exceeds that of supply and secondly, the impact of the inflow of financial capital to the futures market occurs additionally, which is an external factor in the sense of traditional grain market.
In order to provide effective information, chapter 2 analyzed the world grain market, which includes an analysis of world grain market trends and major producing countries of each commodity and a comparative analysis of grains. In chapter 3, controversial issues surrounding the inflow of financial capital into the futures market were examined to search for a method of expanding the information related to the futures market. In chapter 4, necessary factors and utilization method were discussed to utilize the overseas grains futures market. Finally in chapter 5, the establishment and operation of『World Grain Market Information System』has been discussed. For this discussion, USDA PS&D data from 1960 to 2011 was analyzed as a major factor in the food balance sheet, while literature and data concerning commodity futures were analyzed.
Research Results and Implications
The results of the analysis on the world grain market through chapters 2 and 5 suggest that the whole level of grain consumption and production has been increased continuously even though there were some differences among items, but the trade volume stayed at a certain level and this confirmed that the grain market is thin and the trade is concentrated. Market instability, in particular, was detected in the demand and supply of corn as if to reflect a new demand for bioenergy, and it has been found that South America and neighboring countries of Russia have built the grain industry as a strategic export industry, which we expect will be analyzed in the information system.
The background and the condition of the inflow of financial capital and its accompanying issues and implications were examined concerning commodity market financialization, and it was pointed out that the loophole of institution, such as large volume purchase according to institutional investors' portfolio theory and regulation of modernization of commodity futures, acted as the background. The major issues examined were the increase of grain price and the expansion of price volatility owing to the inflow of financial capital in the futures market in the form of commodity index, the increase of basis risk owing to the impediment to the convergence of spot price and futures price, and the expansion of co-movement among grain commodities as well as grain and energy price, etc.
Lastly, as a result of the study on the method to utilize commodity futures by domestic grain importers, it was pointed out that the biggest problems were the prejudice on futures and the lack of the recognition of target price, and a method was proposed to provide customized education and incentives through an association of people concerned and political support to induce nurturing of experts and participation of specialized institutions as well as government's acting as a risk management agency. Moreover, it was implied that information storage of basis and monitoring of SCOT and DCOT are also important in order to utilize the futures market in the aspect of information utilization.
Researchers: Myung Hwan Sung, Suk-Ho Han, Dae Heum Kwon, Byung Sam Yoon, Jun-ho Seung, Jae Woong Yoon, Na-kyung Kwon, In-Ae Shin, Keun-Soo Han
Research Period: 2012. 1～2012. 12
E-mail address: mhsung@krei.re.kr
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