Campus Units

Economics

Document Type

Presentation

Conference

2020 Agricultural & Applied Economics Association Annual Meeting

Publication Version

Submitted Manuscript

Publication Date

2020

Conference Title

2020 Agricultural & Applied Economics Association Annual Meeting

Conference Date

July 26-28, 2020

City

Kansas City, MO

Abstract

China reported its first outbreak of African swine fever in August 2018. The devastation caused to the Chinese hog herd has had far-reaching implications for the international pork market. The protein deficit caused by the African swine fever outbreak in China and elsewhere in Southeast Asia continues to create opportunities for exporting countries to fill the void and provides openings for back-filling other partner country’s demand needs. At the same time, increased prevalence of ASF has fueled concerns regarding the spread into disease-free regions, including the United States. Given the position of both China and the United States in the international pork market, of interest is how the U.S. pork market has responded. A structural break test identifies up to five structural breaks in a constructed series of “year-out” implied volatilities calculated from CME lean hog options. We calculate changes in the market-perceived probability of a catastrophic price decrease occurring in the CME lean hog market, with results indicating that the probability has increased substantially. The average market-perceived probability of a 30% price decrease during August 27, 2018, to March 13, 2019, increased by 165% compared to the period November 11, 2017, to August 26, 2018. Hog producers, government entities, and allied industries could all leverage this information in many of their business decisions, risk analyses, and contingency planning.

Comments

This is a Selected Paper prepared for presentation at the 2020 Agricultural & Applied Economics Association Annual Meeting, Kansas City, MO July 26-28, 2020

Rights

Copyright 2020 by Christopher C. Pudenz and Lee L. Schulz. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

Copyright Owner

The Authors

Language

en

File Format

application/pdf

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