Measuring Scarcity in Agricultural Markets, 1900-2000 : The Shifting Informativeness of Price V Storage Data

Kaldor (1939) and Working (1948,1949) note that a commodity's backwardation is very much related to temporary scarcity. To them, the obvious measure of scarcity is the current level of inventories relative to a normal level. In 1987-2007 data, however, the spot price has become much more successful at explaining backwardation in agricultural markets (Carbonez, Nguyen and Sercu, 2010). This raises the question as to why Kaldor and Working did not bring up this measure, especially after the influential Hayek (1945) paper on the role of prices in market economies.We hand-collect 1885-1935 data, which correspond much better to material that Working and Kaldor should have had access to. In those days, we find, prices were effectively less informative than in modern times, while inventories were more so. The declining relevance of storage data can plausibly be traced to the waning of Chicago as the main ag warehouse of the US., culminating in a new delivery system where the goods are represented by shipping receipts on a barge on the Illinois or Mississippi river rather than Chicago warehouse receipts