"Commodity Price Comovement: The Case of Cotton," with Joseph Janzen, University of California at Davis. Wednesday, November 14, 4:10 PM, 368A Heady Hall.

Joseph Janzen is a Ph.D. candidate in the Department of Agricultural and Resource Economics at the University of California, Davis, where he studies commodity futures markets, agricultural marketing, applied econometrics, and industrial organization. His research assesses the role of speculation, electronic trading, and liquidity constraints in the price discovery process for agricultural commodity futures. Born and raised on a family farm in the Red River Valley of Manitoba, he holds B.Sc. and M.Sc. degrees in agribusiness and agricultural economics from the University of Manitoba.

Abstract: During the commodity price boom and bust of 2007-2008, cotton futures prices rose and fell dramatically in spite of high levels of inventory. At the same time, correlation between cotton and other commodity prices was high. These two observations underlie concerns that cotton prices during this period were poor signals of cotton market fundamentals and that the cotton market was "taken along for a ride" with other commodities. The apparent coincidence of extreme price movement across a broad range of commodities requires an explanation. Were cotton prices driven by the same set of macroeconomic factors as the other commodities? Did cotton markets suffer from supply disruptions at the same time that the other commodities faced disruptions? How did expectations about future market conditions affect prices? What was the role of futures market speculators and the rise of commodity index trading? To answer these questions, we develop and estimate a structural vector autoregression model to test the relative contribution of global economic activity, current and expected supply and demand conditions, and financial speculation to observed cotton prices. To separately identify the impact of current and expected fundamental shocks, we employ a method-of-moments estimator that uses information about the variance of price innovations. We argue that the "kinked" demand curve for storable commodities (due to the zero lower bound on inventories) plausibly creates tranquil and volatile price regimes; the presence of multiple regimes generates additional moment conditions that identify the model. We find that supply and demand shocks specific to the cotton market are the major source of cotton price variation. There is scant evidence of comovement-type effects related to financial speculation. While most historical cotton price spikes are driven by shocks to current net supply, the 2007-2008 spike was caused by higher demand for inventories.

"Does the Jack of All Trades Hold the Winning Hand?: Comparing the role of specialized versus general skills in the returns to an agricultural degree," with Georgeanne Artz, Iowa State University. Friday, November 16, 3:40 PM, 368A Heady Hall.

Dr. Georgeanne Artz is currently a scientist in the Economics Department at Iowa State University. Georgeanne earned her Ph.D. in agricultural economics from ISU in 2005. She holds a B.A. in economics from Yale University and a M.S. in resource economics and policy from the University of Maine at Orono. From 2005 to 2011 she was on faculty at the University of Missouri as an assistant professor in the Department of Agricultural and Applied Economics with a joint appointment in the Truman School for Public Affairs. She previously worked as an extension program specialist at ISU, researching and providing outreach programming on retail trade analysis, community economic development, agribusiness management, and cooperatives. She was awarded a New Professional Award for her work with ISU Extension in 2001. Georgeanne’s research interests focus in the areas of rural labor markets, agribusiness and cooperatives management, entrepreneurship and rural economic development. She received an honorable mention for the Barclay G. Jones Best Dissertation in Regional Science Award in 2006 for her dissertation work on the impact of meatpacking plants on rural communities. Her recent research projects span a variety of topics including machinery and labor sharing among farmers in the Midwest, farmer interest in supplying biomass, the role of worker cooperatives in rural development, and the role of migration in rural entrepreneurship.

Abstract: This paper examines the roles of specialized versus general skills in explaining variation in the returns to an agricultural degree across majors inside and outside the agricultural industry. The focus on returns by sector of employment is motivated by the finding that most agricultural majors are employed in non-agricultural jobs. A sample of alumni graduating from Iowa State University between 1982 and 2006 shows that alumni with majors more specialized in agriculture earned a premium from working in the agriculture industry, but this advantage has diminished over time. Agricultural majors with more general training earn more outside than inside agriculture. Higher ability graduates in more industry-focused curricula tend to sort into the agricultural industry while higher ability graduates in broader curricula tend to choose jobs outside of agriculture. All majors are more likely to accept agricultural employment when the farm economy is strong, but agricultural graduates who enter agricultural jobs when the farm economy is weak suffer lifetime earnings reductions. These findings suggest that greater levels of specialization may limit a graduate’s ability to adjust to changing economic circumstances. Agricultural degree programs could benefit from curriculum innovations focused on developing more generalized skills.

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