The effect of Chicago Board of Trade prices and fundamental factors on South African yellow maize prices

Abstract

Maize traders on the South African Futures Exchange (SAFEX) strive to determine future price movements by tracking the following influential price indicators: domestic fundamental factors, the USA yellow maize prices, and the ZAR/USD exchange rate. This study investigates whether there were certain periods where the CBOT yellow maize prices influenced the SAFEX yellow maize prices more than in other periods, as well as whether fundamental factors can be used as a price indicator in the periods where CBOT had a less significant effect on the SAFEX prices. Therefore, this study examined the approach of determining the future price movements of yellow maize prices in South Africa by establishing the volatility spill–over effect between the two markets in two seasonal regimes and comparing the results. After an extensive empirical study and a supporting literature overview of the fundamental factors that influence the South African and USA maize markets, the volatility spill–over effect between SAFEX and CBOT was determined. This led the study to conclude the following: There are certain periods where the CBOT yellow maize prices influenced the SAFEX yellow maize prices more than in other periods. Consequently, in the periods where CBOT did have a less significant influence on the SAFEX prices, fundamental factors could be used as an alternative price indicator. Traders on the SAFEX market can therefore use the CBOT yellow maize prices as a reliable price indicator in the South African harvesting season; whereas, in the planting season, the CBOT prices in collaboration with fundamental analysis should be used.