Price Discovery in the Chinese Corn Futures Market, With Comparisons to Soybean Futures



The Chinese corn futures market is the second largest after the CBOT in terms of trading volume in contracts. In 2012, the trading volume of corn futures was 37 million contracts (or 378 million metric tons). The relationship between Chinese corn futures and spot prices is studied to gauge the price discovery process. Formal statistical tests are conducted based on Johansen's co-integration, Granger causality and the Garbade-Silber approach for the corn spot prices and futures prices. All empirical analysis is also performed for GMO and non-GMO soybeans to provide a contrast with the corn futures market. The results suggest that Chinese corn futures prices guide the spot prices; that is, the corn futures market can serve as legitimate guide for future cash prices. This conclusion is valid for GMO futures market, but is not found to be the case for non-GMO soybeans, where spot prices guide futures prices.