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An analysis of the dairy industry: regional impacts and rational price formation




Swanepoel, Graham, author
Hadrich, Joleen, advisor
Koontz, Stephen R., committee member
McConnel, Craig, committee member

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In the first chapter an Input-Output model was used to estimate the economic contribution of the combined dairy industry to the local Colorado economy. Due to the substantial increase in the dairy industry over the last decade, there was need to quantify the economic role of dairy industry, from dairy producers to dairy processers, and measure the linkages with allied industries in terms of output, value added, and employment contributions. It was estimated that the total economic contribution of the dairy industry exceeded $3 billion in 2012, and accounted for roughly 4,333 jobs. In the chapter two Class III milk futures contracts are examined for the presence of rational price formation due to increasing uncertainty surrounding revenue streams for dairy producers. Presence of rational price formation suggests an efficient market, allowing for increased confidence in the futures market. A system of 12 seemingly unrelated regressions is used to investigate rational price formation. Futures contracts are found to be acting in an allocative capacity from 11 months to 3 months prior to expiration month. In the last 2 months, the forward pricing role is dominant taking into account the supply and demand dynamics in the market. It is found that Class III milk futures play both roles well, indicating that they are efficient in utilizing all information available through the last 12 months of trading.


2014 Summer.
Includes bibliographical references.

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