Estimating the Location of World Wheat Price Discovery

The United States may be losing its leadership role in the world wheat market. Rising trading volume in foreign futures markets and shifting shares of world trade are suggested as evidence of this shift, but neither necessitates that futures markets in the United States are any less important for wheat price discovery. This paper applies high frequency pricing data and market microstructure methods, including the Yan and Zivot (2010) information leadership share, to estimate the proportion of price discovery occurring in wheat futures markets associated with Chicago, Kansas City, Minneapolis, and Paris. We find United States futures markets remain dominant, although the share of price discovery for the Paris market increased noticeably in 2010, coinciding with major supply shocks in Russia and Ukraine. Prior to August 2010, 91% of information about the common fundamental value of wheat was first revealed in United States futures markets in an average month. After August 2010, this share dropped to 75%.