Testing for Weak-Form Efficiency in South African Futures Markets for White and Yellow Maize

Agricultural marketing policy in South Africa has moved from a fully regulated marketing environment to a more open and transparent system. The demise of the Maize Board in 1996 created a need for South African maize producers to give more attention to price risk management. Commodity futures markets should be efficient to play the most effective role in price risk management. This study tests for weak-form efficiency in the South African Futures markets for white and yellow maize by examining the predictability of daily futures price changes. The results suggest that futures price changes for both white and yellow maize are partially predictable from past price information. The implication is that past price information does contain additional information that could be used to forecast the future price once the current futures price is known. But when taking into account brokerage costs and the time value of money, out of sample predictive performance of the model indicates that trading decisions based on the direction of predicted futures price changes do not lead to profitable trades for either crop. Hence, the evidence suggests there is no strong support for weak-form inefficiency in South African futures markets for white and yellow maize. The results further suggest that there is no trend in market efficiency over time for white and yellow maize futures markets in South Africa.