| This dissertation is composed of four essays broadly focusing on U.S. commodity markets with an emphasis on grains and cropland used to produce grains. The essays each address specific factors surrounding commodity markets and agricultural land-use which have been relevant in individual decision-making processes or recent policy debates. The first essay is motivated by data which reveal that grain producers' hedging decisions have changed over time, and have been strongly correlated with futures price levels. Using prospect theory as the underlying behavioral framework, there are two main goals: to outline a mechanism that allows for this correlation, and to illustrate the corresponding implications for cash prices and volatility at harvest. The second essay uses an empirical approach to determine the extent to which speculative trading has influenced commodity futures prices and volatility. Tests of Granger causality are conducted in the time domain for each of 19 actively-traded commodities individually, as well as in aggregate, using seemingly unrelated regression analysis. Tests of causality are also conducted in the frequency domain to distinguish between long-run and short-run causality. The third essay seeks to provide clarity to the debate on the role of speculation in commodity derivative markets by recognizing that speculation may take more than one form. Encompassing two measures of speculation, an error correction model is used to test for a long-run level relationship between futures prices and speculation and between volatility and speculation. The goal of the final essay is to explore the implications of conventional agricultural life cycle assessments (LCAs) that fail to account for the opportunity cost associated with land scarcity. A model to represent the interests associated with biofuel production in the United States is constructed that minimizes environmental damages and accounts for the external benefits to production by choosing acreage optimally. Corn and switchgrass are modeled as crops competing for land-use. |
