Agricultural Finance. From Crops to Land, Water and Infrastructure. Helyette Geman

Transcription

1 Agricultural Finance From Crops to Land, Water and Infrastructure Helyette Geman WILEY

2 Table of Contents Acknowledgments About the Author Preamble xiii xv xvii 1 Physical and Financial Agricultural Markets Agriculture and the Beginning of Human Sedentarization Some recent numbers The growing role of Africa The Outlook of Agricultural Commodities Markets Recent mergers and acquisitions 'Trading places': from the ABCD to the NOW The physical markets The global flows of commodities Back to the future: a new age for barter The sources of Information in agricultural commodity markets History of Commodity Futures and Spot Markets The actors in financial markets The actors in agricultural commodity exchanges The growth of Futures markets exchanges and the recent mergers Futures markets and price volatility The role of Indexes in the creation of efficient commodity spot markets Commodities and numeraire Shipping and Freight International trade Price formation in freight markets 18 2 Agricultural Commodity Spot Markets Introduction Price Formation in Agricultural Commodity Markets Volatility in Agricultural Markets Volatility of the price level versus return in agricultural commodity markets 32

3 viii Table of Contents Which factors drive volatility? Conclusion 38 3 Futures Exchanges - Future and Forward Prices - Theory of Storage - The Forward Curve Major Commodity Exchanges Forward Contracts Futures Contracts Definition Exchange of Futures for physicals (EFP) Relationship between Forward and Futures Prices Example of a Future Spread Inventory and Theory of Storage Spot and Futures prices volatilities Development of the theory of storage: inventory and prices The Benefits of Forward Curves Trading strategies around forward curves Example of a seasonality-based Futures spread From linear to convex payoffs Stochastic Modeling of the Forward Curve 55 4 Piain Vanilla Options on Commodity Spot and Forward Prices. The Bachelier-Black-Scholes Formula, the Merton Formula, the Black Formula Introduction Classical Strategies involving European Calls and Puts Straddle Strangle Call spread or vertical call spread Butterfly spread Put-Call Parity for a Non-dividend Paying Stock Valuation of European Calls: the Bachelier-Black-Scholes Formula and the Greeks Consequences of the Black-Scholes formula The Greeks The Merton (1973) Formula for Dividend-paying Stocks Options on Commodity Spot Prices Options on Commodity Futures: the Black (1976) Formula Monte-Carlo Simulations for Option Pricing The founding result Monte-Carlo methods for piain vanilla options on non-dividend paying stocks Monte-Carlo methods for piain vanilla options on the spot commodity Implied Volatility, Smile, and Skew in Equity Option Markets Volatility Smile in Agricultural Commodity Markets Where is the liquidity in agricultural commodity option markets? Extracting the implied volatility from options on commodity Futures 86

4 Table of Contents ix 5 Commodity Swaps, Swaptions, Accumulators, Forward-Start, and Asian Options Swaps and Swaptions Accumulators Forward-Start Options (or Calendar Spread Options on the Spot Price) Asian Options as Key Instruments in Commodity Markets Approximation of the arithmetic average by a geometric average Approximation of the distribution of the arithmetic average by a log-normal distribution Monte-Carlo simulations for Asian options valuation Exact results (Geman and Yor, 1993) Trading the Shape of the Forward Curve through Floating-strike Asian Options Exchange, Spread, and Quanto Options in Commodity Markets Exchange Options Commodity Spread Options and Their Importance in Commodity Markets Commodity Quanto Options Grain Cereals: Com, Wheat, Soybean, Rice, and Sorghum Introduction Com Wheat Wheat trading Global wheat The wheat supply chain Soybeans Rice Sorghum Sugar, Cocoa, Coffee, and Tea Sugar Links of sugar with other commodities Sugar trading The European Union Special relations of the EU with other countries The United States Special relations of the USA with other countries Brazil China India Thailand Australia Guatemala and Cuba Sugar cane in Mauritius Cocoa Coffee Tea 149

5 x Table of Contents 9 Cotton, Timber and Wood, Pulp and Paper, Wool Cotton Lumber and Wood Pulp and Paper Pulp NBSK and BHKP indexes Pulp US NBSK index Pulp BHKP China Pulp NBSK China When bank notes go plastic Wool and Cashmere Cashmere From the Kashmir Goat to high quality yarns Orange Juice, Livestock, Dairy, and Fishery Orange Juice Livestock Livestock markets Cattle Hogs Pork beilies The US live cattle contract specifications Australia The USA Dairy Fish Markets Poultry and Eggs Rubber, Palm Oil, and Biofuels Rubber Palm Oil The oil palm and palm oil Markets Ethanol, Biofuels, and Biomass Land, Water, and Fertilizers Land Types, Yields, and Erosion Yield-at-risk Land competition Farmland in the USA Fertilizers Fertilizer markets Fertilizer Index, com, and wheat price trajectories over the period 1991 to Fertilizer producing companies and share price returns over the period 2004 to

6 Table of Contents xi A factor model for the share returns of fertilizer firms Water and its crucial Role in the World Economy The case of Australia, China, and Saudi Arabia The case of Brazil Competition for electricity, water, and land Projections for the Future of Agriculture Farm insurance Estimating long-term agricultural supply Market concentration Spare capacity Subsidies and Export Bans Subsidies Export bans Market-oriented Farming Open wheat market takes root in Canada Kansas City wheat Futures trading coming to an end after 157 years China food needs Infrastructure and Farming Management in the Digital Age Introduction Agricultural Infrastructure Total factor productivity Climate change Irrigation and increased productivity Trends in Irrigation Storage Grain elevators Soybean crushers The Brave New World of Monsanto Infrastructure in sub-saharan Africa Gabon: after black gold, green gold? Agricultural Transformation Agenda (ATA) in Nigeria Digital age on the farm: prescriptive planting Sugar biofactory for ethanol in Brazil After ethanol, railway, and natural gas From iron ore mining to cattle farming in Australia Robots for cow milking Containers for agricultural commodities Singapore as a hub for refrigeration Containers The trip of the banana Energy, water, and infrastructure for DAP and agriculture in Saudi Arabia Country Risk: the Example of Ukraine in Analyzing the Risks Involved in an International Wheat Tender Offer Weather Risk and Weather Derivatives 229

7 xii Table of Contents 14 Investing in Agricultural Commodities, Land, and Physical Assets Purchase of Commodity Futures Purchase of Commodity Options and Structured Products Commodity Index Investing Some prominent commodity indexes How commodity indices are constructed Commodity-linked bonds Investing in Commodity-related Equities Investing in Land The US case The world case Acquisition of Infrastructure and Physical Assets Valuation of a transformation plant using a real options approach DCF approach to the valuation of a transformation plant Valuation of a silo (or an aquifer, or any storage facility) Conclusion 247 Glossary 248 References 252 Index 257