TERMINAL MARKET

Terminal Markets

Terminal Markets

Terminal Markets may create problems in pricing farm products. One concern is that a small volume of trading at a central market place can result in price behavior not warranted by economic conditions. Moreover, deliberate manipulation of prices is more feasible with a small volume. If the central market quotations are used as base prices in other transactions, the problems of unwarranted or manipulated prices acquire increased economic importance. Research and writing on Terminal Markets can be categorized under five questions. First, what is a Terminal Market? Second, why do markets become thin? Third, if a market becomes thin, what are the consequences, if any, for price behavior? Fourth, if price behavior is influenced, what is the mechanism or linkage between market volume and price behavior? Finally, if Terminal Markets have adverse consequences, what solutions exist for the problem? Although a considerable general literature exists on Terminal Markets (Alfred Palaskas 1995) (e.g., Hayenga), there is little specific information or empirical evidence on these questions. In this context, this paper has two objectives: to develop a more precise definition of thinness and to investiWilliam G. Tomek is a professor of agricultural economics, Cornell University. The paper was written while the author was a visiting economist, Economics, Statistics, and Cooperatives Service, U.S. Department of Agriculture, and their support of the research is gratefully acknowledged. M. L. Hayenga, J. Hassler, R. G. Heifner, K. H. Kahl, J. S. Mann, K. E. Nelson, and T. D. Mount provided helpful comments on an initial draft. The author, of course, accepts full responsibility for the final content. gate the effects on price behavior of a declining volume of trading on a central market. In addition, the linkage between volume and price behavior is discussed briefly. The empirical application is for choice steer prices in Denver, a terminal market that declined and disappeared. Steer prices in other locations are used as a standard of comparison. This paper, however, is essentially a search for hypotheses and an exploration of methods, and the empirical results should not be interpreted as definitive conclusions about price behavior on Terminal Markets. (Richard Bockstael 1991)

Demand in China is steadily Driven commodity prices higher. China turned from a net exporter to a net oil importer within a few years. Periodic checks on Bloomberg terminal shows a steady stream of tankers headed to the Persian Gulf to Asian ports. Chinese demand ...