I looked up onions, lettuce and tomatoes (because burgers), and the volatility actually looks very similar. Am I missing something or looking at the wrong things?
Lettuce and Tomatoes don't keep well, which adds more seasonal variability and reduces the ability of a futures market to smooth prices.
Compare with potatoes, which keep about as well an onions, and are farmed in the same areas. Look at onions and potatoes over a 5-year time span (because the default all-data time span is silly for this). It doesn't give enough control of the Y axis to make the comparison easy - for potatoes it shows me Y=40-320, for a range of 280; for onions it shows me Y=120-440, for a range of 320. This means that potatoes are more "zoomed in" and it's graph will exaggerate volatility relative to onions, but qualitatively, I'd say the potato graph looks smother just the same. This is exactly what economic theory says a futures market should do to the price.
> Lettuce and Tomatoes don't keep well, which adds more seasonal variability
The more durable a produce is, the easier it is to transport over a large area, which will always smoothen price fluctuations. This alone could explain why lettuce and tomatoes have higher volatility than onions, which have higher volatility than potatoes, which have higher volatility than corn and weat.
At least that's the null hypothesis that the hypothetical effect of futures should be compared to.
I know nothing about logistics of the food supply chain and how they preserve food at scale, but at least at home I'd say that potatoes are close to twice as durable as onions.
cwal37 · · focus · HN ↗
<a href="https://en.wikipedia.org/wiki/Onion_Futures_Act" rel="nofollow">https://en.wikipedia.org/wiki/Onion_Futures_Act
(which also banned box office receipt futures)
A fun thing is to go on FRED and make a graph with prices from onions and, say, corn to see the differences in volatility.
chirau · · focus · HN ↗
Tomato: <a href="https://fred.stlouisfed.org/series/WPU01130217" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130217 Onion: <a href="https://fred.stlouisfed.org/series/WPU01130216" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130216 Lettuce: <a href="https://fred.stlouisfed.org/series/WPU01130215" rel="nofollow">https://fred.stlouisfed.org/series/WPU01130215
repiret · · focus · HN ↗
Compare with potatoes, which keep about as well an onions, and are farmed in the same areas. Look at onions and potatoes over a 5-year time span (because the default all-data time span is silly for this). It doesn't give enough control of the Y axis to make the comparison easy - for potatoes it shows me Y=40-320, for a range of 280; for onions it shows me Y=120-440, for a range of 320. This means that potatoes are more "zoomed in" and it's graph will exaggerate volatility relative to onions, but qualitatively, I'd say the potato graph looks smother just the same. This is exactly what economic theory says a futures market should do to the price.
stymaar · · focus · HN ↗
The more durable a produce is, the easier it is to transport over a large area, which will always smoothen price fluctuations. This alone could explain why lettuce and tomatoes have higher volatility than onions, which have higher volatility than potatoes, which have higher volatility than corn and weat.
At least that's the null hypothesis that the hypothetical effect of futures should be compared to.
repiret · · focus · HN ↗
stymaar · · focus · HN ↗