An Economic Analysis of the Pricing Efficiency and Market Organization of the U.S. Grain Export System

GAO provided a supplement to its report on: (1) the organization of the U.S. grain export system; (2) economic measures for perceived performance problems; (3) an empirical analysis using these measures; and (4) the implications of the empirical results for the organization of the U.S. grain export system.

The analysis revealed a healthy rate of entry into the industry, the presence of central market institutions providing for competitive price discovery, and a high degree of pricing efficiency in the U.S. grain export system. The idea that the export industry is controlled by a cartel of major multinational corporations is a misconception. The efficiency of futures markets in aggregating information about export sales into price was analyzed using the efficient market hypothesis, which states that prices in an efficient market reflect all available information. Three levels of efficiency have been proposed for which models of price behavior in the U.S. grain export system were developed. The actual behavior of prices in the futures markets was compared to the hypothesized forms of price behavior using spectral and cross spectral analysis. It was concluded that the hypotheses of weak form, semi-strong form, and strong form efficiency cannot be rejected. These results imply that initial price response to imperfect information is followed by further adjustment upon public release of the correct information about export sales.