Cointegration relations between spot and futures prices for selected commodities: Implications for hedging and forecasting

Cointegration analysis is used to study the spot and futures price relationships for two storable commodities, corn and soybeans, and a nonstorable commodity, live hogs, over a 13-year period, 1980 to 1992. For corn and soybeans, cointegration is found in most pre-harvest contracts (July), and post-harvest contracts (November and December) in low crop years (1983 and 1988). And, specifying a time dimension in the cointegration relation is often important to finding the evidence of cointegration. And, in general, the cointegration relation would not seriously violate of the spot-futures price parity if we take into account that the spot price is often at a premium or discount to futures in commodity markets. As parity holds under no arbitrage condition, there is no strong evidence against the markets being efficiently linked.