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Fort Collins, CO | I agree calculating risk premiums isn't simple, and even if one could, doing so precisely would be nearly impossible. There are too many variables that go into pricing any asset.
However, I think the concept of risk premiums is valuable, hence the article linked in an earlier response. I believe this is especially true on a relative basis. I think about it like this. If I'm driving on a two-lane road with a jammed accelerator, no brakes, and two stopped cars in front of me, one in each lane, knowing exactly how far they are away probably isn't nearly as important as knowing which one is closer. Their overall distance to me is constantly changing and hard to guess, but their relative distance to each other is static and easier to estimate. That's why we look at things like the relative movement of corn futures to our corn demand index from the viewpoint of a risk premium. It gives us a data point that might help us choose the best lane rather than complete the mostly academic task of measuring how far away the cars are.
I hope that clarifies our view.
Thanks for the comment,
James | |
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Weekly Corn Market Update *BONUS CHART*
