Journal of Forest Economics > Vol 14 > Issue 1

Price discovery in a private cash forward market for lumber

Mark R. Manfredo, manfredo@asu.edu , Dwight R. Sanders
 
Suggested Citation
Mark R. Manfredo and Dwight R. Sanders (2008), "Price discovery in a private cash forward market for lumber", Journal of Forest Economics: Vol. 14: No. 1, pp 73-89. http://dx.doi.org/10.1016/j.jfe.2007.04.003

Publication Date: 14 Jan 2008
© 0 2008 Mark R. Manfredo, Dwight R. Sanders
 
Subjects
 
Keywords
JEL Codes:G100Q000Q230
Price discoveryGranger causalityFutures pricesForward pricesSpot prices
 

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In this article:
Introduction 
Bloch Benchmark prices and Guaranteed Forward Price program 
Data and methods 
Results 
Summary, conclusions, and future research 

Abstract

Cash forward contracting is a common, and often preferred, means of managing commodity price risk in many industries. Despite this, little is known about the performance of cash forward markets, in particular the role they play in price discovery. The US lumber market provides a unique case for examining this issue. The Bloch Lumber Company maintains an active cash forward market for many lumber products, and publishes benchmark forward prices on their website and disseminates these prices to data vendors. Focusing on 2×4 random lengths lumber and 7/16 oriented strand board, this research examines the lead–lag relationships between the 3-month forward prices published by Bloch Lumber, representative spot prices, and lumber futures prices at the Chicago Mercantile Exchange. Results suggest that at least for 2×4 random lengths lumber, the forward prices published by Block Lumber lead both the spot price and futures price, suggesting that this private cash forward market provides some level of price discovery in the lumber markets.

DOI:10.1016/j.jfe.2007.04.003