Weather On Ag Futures

2nd Reading
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Fluctuation and Noise Letters

Vol. 15, No. 2 (2016) 1650012 (21 pages)

c World Scientific Publishing Company
DOI: 10.1142/S0219477516500127
Effect of Weather on Agricultural Futures Markets

on the Basis of DCCA Cross-Correlation
Coefficient Analysis
Guangxi Cao∗,†,‡ , Cuiting He† and Wei Xu†

∗CollaborativeInnovation Center on Forecast
by MCGILL UNIVERSITY on 04/06/16. For personal use only.
Fluct. Noise Lett. Downloaded from www.worldscientific.com
and Evaluation of Meteorological Disasters

†School of Economics and Management
Nanjing University of Information Science & Technology

Ningliu Road 219, Nanjing 210044, P. R. China
‡caoguangxi@nuist.edu.cn
Received 30 October 2015

Accepted 30 January 2016
Published 30 March 2016
Communicated by Wei-Xing Zhou
This study investigates the correlation between weather and agricultural futures markets
on the basis of detrended cross-correlation analysis (DCCA) cross-correlation coefficients
and q-dependent cross-correlation coefficients. In addition, detrended fluctuation anal-
ysis (DFA) is used to measure extreme weather and thus analyze further the effect of
this condition on agricultural futures markets. Cross-correlation exists between weather
and agricultural futures markets on certain time scales. There are some correlations
between temperature and soybean return associated with medium amplitudes. Under
extreme weather conditions, weather exerts different influences on different agricultural
products; for instance, soybean return is greatly influenced by temperature, and weather
variables exhibit no effect on corn return. Based on the detrending moving-average cross-
correlation analysis (DMCA) coefficient and DFA regression results are similar to that
of DCCA coefficient.
Keywords: DCCA cross-correlation coefficient; threshold; weather; agricultural futures.
1. Introduction
With the emergence and development of the Chinese market economy system, our
country has canceled the purchase and sale policy of agricultural products and
deregulated most of the price of agricultural products, which promoted the genera-
tion and rapid development of China’s futures market. As with other futures mar-
kets, agricultural products have become China’s first commodity for futures trading.
∗ Corresponding author.
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G. Cao, C. He & W. Xu
On October 12, 1990, the Zhengzhou grain wholesale market was the first commod-
ity futures market approved by the State Council in China, and the introduction
of futures trading mechanism was the first step in the development of China’s agri-
cultural futures market. To date, agricultural futures are still important trading
varieties in China’s futures market. China’s futures market has undergone several
rounds of clean-up and rectification, and only three futures exchanges remained,
namely, the Shanghai Futures Exchange, the Dalian Mercantile Exchange, and the
Zhengzhou Mercantile Exchange. Among the three futures exchanges, agricultural
futures have the widest traded variety, which includes food, cotton, oil, and sugar.
Agricultural product futures markets are influenced by many factors, such as
macroeconomic factors, supply and demand factors, and natural factors. Thus, the
stability is poor and the risk is relatively high. The frequency of extreme weather
events has increased with the occurrence of global warming in recent years. The
price and output of agricultural products are more influenced by weather compared
with those of non-ferrous metals and other industrial products in futures markets.
For example, the northeast region of China, which is the main soybean production
region, encountered a once-in-50 years drought disaster in the first half of 2003;
this phenomenon reduced the yield of soybeans. In mid-to-late June, the continuous
wet weather caused the late growth of soybeans. Surprisingly, the price of soybean
contracts continued to increase to a high degree. In mid July 2007, the U.S. Mete-
orological Agency predicted that the U.S. Midwest rainfall would increase and the
high temperature threat would be reduced. After the news, the soybean contract
of the Chicago Board of Trade sharply decreased, and its closing price dropped by
50 cents/PO. Soybean slump even encumbered corn that eventually closed at the
limit position. In July 2012, the Midwest area continued to experience several days
of high-temperature weather; more than 50% of the land was affected by drought,
and the continuous high temperature and drought caused crop damage in a large
area. Soybean, corn, and other products reached their critical periods of growth;
hence, the prices of soybean and corn sharply increased in the market. U.S. Chicago
futures exchange data show that corn and soybean prices have risen by approxi-
mately 50% and 30%, respectively, both being the highest increase rates since May
2015. On the basis of the food price index released by the United Nations Food and
Agriculture Organization, the global agricultural product price index increased by
6.2% in July 2009, which is the highest rise since November 2012. High temper-
ature, drought, heavy rain, and other extreme weather conditions exert different
effects on agricultural futures markets.
In recent years, some scholars have explored how weather affects stock markets
based on behavioral finance theory. Saunders [1] primarily concluded that stock
returns on the New York Stock Exchange (NYSE) are related to local weather. For
example, cloud cover and NYSE negatively correlate; in specific, stock returns are
negative when the weather is cloudy. Hirshleifer and Shumway [2] also drew the same
conclusions. Lee and Wang [3] established various GARCH models and conducted
generalized error distribution to analyze the relationship between cloud cover and
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Effect of Weather on Agricultural Futures Markets on the Basis of DCCA Coefficient
stock returns in Taiwan from 1986 to 2007. Empirical results showed that long-run
multipliers are usually negative, the multiplier is more effective in low-cloud-cover
periods than in high-cloud-cover periods, and the so-called sunshine effect exists.
Cao [4] used Pearson’s correlation coefficients and asymmetric detrended cross-
correlation analysis (DCCA) cross-correlation coefficients to determine the weather
effects on returns and volatilities in the Shanghai and Shenzhen stock markets.
They found that cross-correlation exists between weather variables and the stock
markets on certain time scales and that the cross-correlation is asymmetric and
time-varying.
Agricultural futures market as an important part of financial markets and agri-
cultural products are susceptible to the influence of the weather. However, there
are not much researches about this and the specific mechanism by which weather
affects agricultural products remains unclear. McCarl and Dellal [5] found that agri-
cultural products and costs are influenced by temperature, humidity, carbon dioxide
concentration, and extreme climates; in specific, these variables can change harvest
time and land use efficiency. Sflater et al. [6] studied the relationship between global
climate change and agricultural products trade. Furthermore, they explored how dif-
ferent measures implemented for different extreme climates correlate with agricul-
tural trade and markets. Obviously, weather conditions strongly affect agriculture
products and then lead to price fluctuation. Thus, short-term climate changes, espe-
cially extreme climate weather changes, improve people’s price expectations in the
future. Studies on the relationship between weather and agricultural products trade
are informative, but limited research focused on weather and agricultural futures
markets. Unsuitable weather conditions for crop growth decrease crop production
and increase future price. Dorfleitner and Wimmer [7] analyzed U.S. temperature
futures at the Chicago Mercatile Exchange and found that temperature futures not
only generate high overall returns but also perform well on a risk-adjusted basis.
Sassi [8] used a stochastic approach to investigate possible sorghum price change
and the related probability of occurrence under different rainfall scenarios and in
a context of price uncertainty on international markets. The researcher found that
sorghum price rises because rainfall and international market volatility improves.
The previous studies mainly used traditional methods to analyze the relation-
ship between the weather and financial market, such as the linear regression model
based on the stationary time series. Time series usually is non-stationary, so we
study the effect of weather on agricultural futures markets using the DCCA cross-
correlation coefficients method primarily put out by Zebende [9] and Podobnik
et al. [10]. It combines DCCA [11] and detrended fluctuation analysis (DFA) [12] to
measure the cross-correlation of two non-stationary time series. Zebende et al. [13]
analyzed the relationship between long-range auto correlation coefficient and cross-
correlation coefficient. Kristoufek [14] proved the accuracy of the DCCA method.
Correlation coefficients can be clearly estimated regardless of the stationary inten-
sity. Cao and Han [4] studied whether or not weather affects the stock markets and
introduced an asymmetric DCCA cross-correlation coefficient. Kwapień et al. [15]
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proposed an extension of ρDCCA to systematically study the strength distribution of

correlations over various ranges of fluctuations. The detrended coefficient has been
tested on simulated and real time series [16–19]. A variety of methods have been
used to analyze the cross-correlation between two non-stationary time series, Zhou
[20] uses the multifractal detrended cross-correlation analysis (MF-DCCA, or called
MF-DXA), which combines the ideas of multifractal detrended fluctuation analy-
sis (MF-DFA) and DCCA. Concerning MF-DCCA, there are also several versions
including the MF-X-DFA [20] based on the DCCA [12], the MF-X-DMA [21] based
on MF-DMA [22] and DMA [23], MF-HXA [24], MF-XPF [25], MF-CCA [26], and
MF-PX-DFA [27].
The research above proves that weather factors could affect stock markets. How-
ever, whether or not the agricultural futures market, one of the important parts
of financial markets, is influenced by weather has yet to be determined. Thus, this
paper is structured as follows. Section 2 explains data choice. Section 3 introduces

methodology. Section 4 presents the empirical results and discusses the results,
and Sec. 5 uses other methods to make some discussions. Finally, Sec. 6 draws the
conclusions.
2. Data
2.1. Data selection
Considering crop output, planting area and data continuity and timeliness, the data
used are daily basis closing prices of yellow soybean and corn. The closing prices
of soybean are sampled from March 15th 2002 to December 31st 2014, whereas
the prices of corn are selected from September 23rd 2004 to December 31st 2014.
The return time series is calculated by the log-difference of daily prices: r(t) =
ln P (t)−ln P (t−1), where P (t) is the closing price at time t. In this paper, all of the
agricultural futures data are obtained from RESSET (http://www.resset.cn/cn/).
In Fig. 1, we show the closing prices of yellow soybean (a) and corn (b), and then
present the return time series of yellow soybean (c) and corn (d).
China is vast in area and varies in climate. The yields of different arable areas
considerably vary because of different weather conditions. However, relevant studies
did not show how these problems can be overcome. Thus, we consider the weather
data (average temperature, average relative humidity, and sunshine duration) of
capital cities as representative. If the data are missed, data taken from capital cities
nearby are used. The weather data are obtained from the China meteorological
data sharing service system (http://www.cma.gov.cn). The weather index can be
expressed as:
n

Wi = αi wi , (1)
i=1
where wi is the weather variable in province i and αi is the proportion of crops

production in province i.
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6000 2800
5500 2600
2400
5000
2200
4500
2000
4000
p
p
1800
3500
1600
3000
1400
2500 1200
2000 1000
0 500 1000 1500 2000 2500 3000 3500 0 500 1000 1500 2000 2500
n n
(a) SP (b) CP
0.1 0.15
0.1
0.05
0.05
0
0
r
-0.05
-0.05
-0.1
-0.1
-0.15
-0.15 -0.2
0 500 1000 1500 2000 2500 3000 3500 0 500 1000 1500 2000 2500
n n
(c) SR (d) CR
Fig. 1. Soybean closing price (a), corn closing price (b), soybean returns (c), and corn returns (d).
Considering that temperature, humidity, and sunshine duration show highly sea-
sonal personality, we suppose that futures markets will show the same characteristic.
Thus, according to the method proposed by Chang et al. [28], we make a little
modification. We first calculate the average temperature, humidity, and sunshine
duration data every seven days and then determine the difference between the daily
data and the average data to obtain the de-season data. To unify weather data with
agricultural futures markets, we remove some weather data and then obtain 3110
yellow soybean data and 2496 corn data.
2.2. Data description

Table 1 shows the descriptive statistics for returns of yellow soybean and corn in
agricultural futures markets. The skewness of soybean is negative, whereas that
of corn is positive; the kurtosis of both crops is greater than 3. The Jarque–Bera
test results further confirm that the returns of the two crops are not subjected to
Gaussian distribution.
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Table 1. Descriptive statistics for returns of soy-

bean and corn in agricultural futures markets.
SR CR
Mean 0.000257 0.000258
Maximum 0.069432 0.141870
Minimum −0.122980 −0.146507
Std. Dev. 0.011755 0.012339
Skewness −0.607194 0.937088
Kurtosis 13.47802 33.55141
Jarque–Bera 14417.91 97437.74
Note: SR and CR denote the returns of soybean

and corn in agricultural futures markets.
Table 2. Descriptive statistics for three weather variables of soybean.
temp hum Sun de-temp de-hum de-sun

Mean 110.7626 64.12494 56.69119 5.35E-11 2.14E-12 5.20E-11
Maximum 284.8490 86.46496 112.1070 77.80958 21.71674 47.73160
Minimum −133.3235 35.38696 3.244399 −74.16794 −21.25274 −56.28761
Std. Dev. 115.6634 9.074060 20.34935 17.16569 4.964989 15.41416
Skewness −0.314399 −0.397611 −0.023330 0.091673 0.197679 −0.248260
Kurtosis 1.734331 2.654283 2.484376 4.363604 3.775053 2.984508
Jarque–Bera 388.8088 146.3693 52.17955 368.5102 147.3656 48.03814
Note: “temp”, “hum” and “sun” denote daily average temperature, relative humidity and sun-
shine duration, respectively. “de-temp”, “de-hum” and “de-sun” denote daily average tempera-
ture, relative humidity and sunshine duration after eliminating trend, respectively.
Table 3. Descriptive statistics for three weather variables of corn.
temp hum sun de-temp de-hum de-sun

Mean 108.4729 60.39865 59.52571 −0.063042 −0.008934 −0.047845
Maximum 284.6635 85.45413 111.2224 65.78912 19.97415 46.10421
Minimum −124.1655 31.36796 6.646834 −81.33173 −20.05218 −52.15493
Std. Dev. 113.3806 9.915786 19.59595 17.34376 5.081845 14.49685
Skewness −0.255677 −0.205210 −0.070673 −0.024333 0.166534 −0.357141
Kurtosis 1.706533 2.387665 2.595088 4.396356 3.691961 3.228993
Jarque-Bera 201.1922 56.51339 19.12899 203.0265 61.33344 58.51415
Note: “temp”, “hum” and “sun” denote daily average temperature, relative humidity and
sunshine duration, respectively. “de-temp”, “de-hum” and “de-sun” denote daily average tem-
perature, relative humidity and sunshine duration after eliminating trend, respectively.
Tables 2 and 3 provide descriptive statistics for three weather variables of soy-
bean and corn, respectively. Both tables show the same results. The standard
deviations of the original weather variables are higher than those of the processed
weather data, indicating that the processed data are much smoother than the origi-
nal data. The results of skewness, kurtosis, and Jarque–Bera test show that weather
variables obey normal distribution.
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3. Methodology
3.1. DCCA cross-correlation coefficient
To quantify the level of cross-correlation, we apply the DCCA cross-correlation coef-
ficient as proposed by Zebende [9]. The DCCA cross-correlation coefficient combines
2
the detrended covariance function FDCCA and the detrended variance function FDFA
(denoted as Fx,DFA and Fy,DFA , respectively) expressed as follows:
2
FDCCA (n)
ρDCCA (α, α , T, n) = , (2)
Fx,DFA (n)Fy,DFA (n)
2
where FDCCA (n) is a detrended covariance between partial sums {Xi } and {Yi } for
a window size n. Fx,DFA and Fy,DFA are detrended variances of partial sums {Xi }
and {Yi }, respectively. T is the length of two series. α and α are the detrended
fluctuation analysis (DFA) exponents. Equation (2) leads us to a new scale of cross-
correlation in non-stationary time series. Here, the value of ρDCCA ranges from
−1 to 1. ρDCCA = 0 indicates that no cross-correlation exists between two series
and that the level of cross-correlation is split between the positive and negative
cases. ρDCCA = 1 indicates that a perfect cross-correlation exists, and ρDCCA = −1
indicates that a perfect anti-cross-correlation exists between two time series.
We use the method proposed by Podobnik et al. [10] to test the significance
of ρDCCA . To carry out this test, we calculate critical points ρc (α, α , T, n) for the
95% confidence level, which defines that the integral between −ρc and ρc is equal
to 0.95. The value of ρDCCA within which the cross-correlations can be regarded
as statistically significant is calculated. If we simulate 200 repetitions and calculate
ρDCCA between them, each setting can be analyzed with respect to the fifth and
the 95th fractiles, which is the standard deviation of the estimate DCCA coefficient
at the 95% confidence interval.
3.2. Threshold estimation method

Extreme weather may cause certain influence on agricultural products, the thresh-
old is more objective in MF-DFA method [29], so we use this approach to get
extreme weather events. This method calculates the threshold with the original,
rise and decline of the data in basis of DFA method [30]. The extreme events do
not (or very little) affect the long-range correlation of the entire system [31], then
we can confirm the thresholds of extreme events.
We consider time series xi and n is the length of series (i = 1, 2, . . . n). The
algorithm [31] to measure threshold is as follows:
(1) Find the maximum xmax and minimum xmin in the series xi ;
(2) Calculate the midpoint (R) of xi , R is the average of xi ;
(3) Starting from xmax , successively remove the values xi in section {xi , xi ≥ xmax −
d × k} until xi = R to obtain the new series yj (j = xmax − d × k), where d is
the interval of the section and k = 1, 2, . . . , (xmax − R/d). Starting with xmin ,
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successively remove the values xi in section {xi , xi ≤ xmin + d× k} until xi = R,

and then obtain the new series yj (j = xmin − d × k), where d is the interval
of the section and k = 1, 2, . . . , (xmin − R/d). The value of d represents the
resolution ratio of this method. The resolution ratio increases as d decreases.
In this paper, we set d = 0.1;
(4) Calculate the index of the long-range correlation of every new time series yj ,
and denote the value of DFA as Dj ;
(5) When the changes in Dj gently converge to the original values hq , j can be
considered the threshold of xi at this time.
4. Empirical Results
4.1. DCCA cross-correlation coefficients
Different from methods that study linear correlations, the DCCA cross-correlation
coefficient method analyzes nonlinear correlations and it can quantify the level
of cross-correlations among non-stationary time series. Therefore, we analyze the
DCCA cross-correlation coefficients between weather and returns of the Chinese
agricultural futures markets and test the DCCA cross-correlation coefficients at the
same time. If ρDCCA do not exceed significant level, it means there is no significant
cross-correlation, otherwise there is significance.
Figures 2(a)– 2(f) show the values of the exponent ρDCCA between temperature
and soybean returns, temperature and corn returns, humidity and soybean returns,
humidity and corn returns, sunshine duration and soybean returns, and sunshine
duration and corn returns, respectively. As shown in Fig. 2, the red curve represents
the ρDCCA between weather and the returns of yellow soybean and corn, and the
black one represents the critical value of the 95% significant level.
In Fig. 2(a), most ρDCCA values are not significant at the confidence interval of
95%, except for a small part of results (0 < n < 160). The results above suggest that
in a certain circumstances, a positive correlation may exist between temperature
and the returns of yellow soybean in futures markets. Moreover, Fig. 2(b) shows
that the cross-correlation between temperature and corn is only significant when n
is approximately 20.
On the study of the DCCA cross-correlation coefficients between humidity and
the returns of soybean and corn, Figs. 2(c) and 2(d) represent most ρDCCA (red
curve) located within significant level (black line), indicating that in most cases
there is no significant correlation between humidity and the returns. But in very
rare instances (Fig. 2(c)), the correlation is significant when n equals 130, 220, and
250. Figure 2(d) shows that the cross-correlation between humidity and the returns
of corn is not significant.
Figures 2(e) and 2(f) show the cross-correlation between sunshine duration and
the returns of soybean and corn, respectively. Figure 2(e) shows that the cross-
correlation coefficients between sunshine duration and yellow soybean are not sig-
nificant. Furthermore, Fig. 2(f) shows that a few coefficients are significant at the
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0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
ρ
-0.2 -0.2
-0.3 -0.3
ρDCCA ρc ρDCCA ρc
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n
(a) SR-TEMP (b) CR-TEMP

0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
-0.2 -0.2
-0.3 -0.3
ρDCCA ρc ρDCCA ρc
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n
(c) SR-HUM (d) CR-HUM
0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
-0.2 -0.2
-0.3 -0.3
ρ ρ ρ ρ
DCCA c DCCA c
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n
(e) SR-SUN (f) CR-SUN
Fig. 2. Plots of DCCA cross-correlation coefficients between temperature and soybean returns (a),
temperature and corn returns (b), humidity and soybean returns (c), humidity and corn returns
(d), sunshine duration and soybean returns (e), and sunshine duration and corn returns (f). Red
lines represent the value of ρDCCA and black lines represent confidence level ρc .
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95% significance level (80 < n < 180) and that most coefficients are not signifi-
cant. The results show that a negative correlation exists between corn return and
sunshine duration.
In general, we find that the relationship between weather variables and the
returns of agricultural futures market is not very significant. Only under certain
conditions, relationships between temperature and soybean return, that between
temperature and corn return, that between humidity and soybean return and that
between sunshine duration and corn return are significant.
4.2. The q-dependent detrended cross-correlation coefficient

In most situations the coefficient ρDCCA works well, but by construction its applica-
bility is limited to detect whether the two signals are generally cross-correlated and
impossible to obtain information on the amplitude of fluctuations that are responsi-

ble for those cross-correlations. To introduce some related flexibility, Kwapień et al.
[15] proposed an extension of ρDCCA (exploits MFDFA and MFCCA, respectively)
to systematically study the strength distribution of correlations over various ranges
of fluctuations. The q-dependent cross-correlation coefficient is defined as:
2
FXY (s)
ρq (s) = q q . (3)
FXX (s)FXY (s)
From the above study, we can find that relationship between temperature and
soybean return is more significant, so this part uses this method to identify the
strength distribution of correlations between temperature and soybean return.
Because other cross-correlations are not very significant, so there is no discussion. As
shown in Fig. 3, we have the following findings. First, for the negative q-values (espe-
cially q = −2) corresponding to small (noise-like) fluctuations, the ρq (s) behavior
seen in this figure indicates the absence of any correlations. Second, for the positive
q-values, ρq (s) is more significant for q = 1 and cross-correlations weakens with
increasing q. This indicates that the largest fluctuations are less correlated and the
most cross-correlated fluctuations are associated with medium amplitudes.
4.3. Applied DFA method to define thresholds

The empirical results above show that weather conditions exert no significant effect
on agricultural futures markets because weather is conductive to crop growth in
most cases; only extreme weather conditions affect crop growth. Recently, global
environmental changes have occurred and caused damage to crops. Thus, futures
markets fluctuate more often than before. Therefore, we will investigate how
extreme weather affects futures markets by using the method improved by Cao
and Zhang [29] to define thresholds.
Figure 4 shows the weather thresholds of original data, uptrend and downtrend,
and abnormal points of weather. The DFA indices of temperature, corresponding to
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0.35 150
q=-3 ρq(s) ρc q=-2 ρq(s) ρc
0.3 100
0.25
50
0.2
ρ (s)
ρ (s)
q
q
0.15
-50
0.1
0.05 -100
0 0 1 2 3
-150 0 1 2 3
10 10 10 10 10 10 10 10
s s
(a) (b)
0.5 0.25
q=-1 ρq(s) ρc q=1 ρ (s) ρ
q c
0.4 0.2
0.3 0.15
0.2 0.1
ρ (s)
ρ (s)
q
q
0.1 0.05
0 0
-0.1 -0.05
-0.2 0 1 2 3
-0.1 0 1 2 3
10 10 10 10 10 10 10 10
s s
(c) (d)
0.4 0.5
q=2 ρq(s) ρc q= 3 ρ (s) ρ
q c
0.3
0.4
0.2
0.3
0.1
ρ (s)
ρ (s)
q
q
0 0.2
-0.1
0.1
-0.2
0 1 2
0 0 1 2 3
10 10 10 10 10 10 10
s s
(e) (f)
Fig. 3. The q-dependent detrended cross-correlation coefficient ρq between temperature and soy-
bean return: q = −3 (a), q = −2 (b), q = −1 (c), q = 1 (d), q = 2 (e) and q = 3 (f). Red lines
represent the value of ρq (s) and black lines represent confidence level ρc .
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1.1 1.2
1.05
1.15
1
1.1
D
D
0.95 original data original data

uptrend 1.05 uptrend
0.9
downtrend downtrend
0.85 1
-150 -100 -50 0 50 100 150 200 250 300 -150 -100 -50 0 50 100 150 200 250 300
5000 4000
4000
3000
3000
2000
n
n
2000
1000
1000
0 0
-150 -100 -50 0 50 100 150 200 250 300 -150 -100 -50 0 50 100 150 200 250 300
t t
(a) TEMP-SOYBEAN (b) TEMP-CORN

1 1
0.9 0.9
0.8 0.8
D
0.7 0.7
30 40 50 60 70 80 90 30 40 50 60 70 80 90
5000 4000
4000
3000
3000
2000
n
n
2000
1000
1000
0 0
30 40 50 60 70 80 90 30 40 50 60 70 80 90
h h
(c) HUM-SOYBEAN (d) HUM-CORN
0.85 0.9
0.8 0.85
0.75 0.8
D
0.7 0.75
0.65 0.7
0.65
0 20 40 60 80 100 120 0 20 40 60 80 100 120
5000 4000
4000
3000
3000
2000
n
2000
1000 1000
0 0
0 20 40 60 80 100 120 0 20 40 60 80 100 120
s s
(e) SUN-SOYBEAN (f) SUN-CORN
Fig. 4. Changes in DFA values about original data, uptrend and downtrend of weather. Temper-
ature thresholds of (a) soybean and (b) corn. Humidity thresholds of (c) soybean and (d) corn.
Sunshine duration thresholds of (e) soybean and (f) corn.
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yellow soybean and corn, are shown in Figs. 4(a) and 4(b), respectively. As shown
in Fig. 4(a), the DFA index is steady when the temperature is less than −113 (unit:
10 C) and greater than 275 (unit: 10 C). When the temperature fluctuates between
−113 and 275, the DFA index significantly changes. Thus, we can take t = 275
and t = −113 as the maximum and minimum values of temperature, that is, the
threshold of the extreme temperature. As illustrated in Fig. 4(b), the DFA index
of the original data, uptrend and downtrend, is stable when the temperature is less
than −123 or more than 269. When the temperature fluctuates between −123 and
269, the DFA index significantly changes. Therefore, t = −123 and t = 269 are used
as the minimum and maximum values of the corresponding temperature. Basing
from Fig. 4(b), we can find abnormal points.
Figures 4(c) and 4(d) show the DFA index of the original data, uptrend and
downtrend, of humidity. As shown in Fig. 4(c), the values of DFA are smooth and
steady when the humidity is less than 39 (unit: %) or greater than 83 (unit: %).
Thus, we determine the threshold of extreme humidity. Figure 4(d) shows that the
DFA index of corn changes with humidity; the following scatter is the corresponding
humidity of corn. Figure 4(d) illustrates that h = 35 is the negative threshold and
h = 81 is the positive threshold. Figure 4(d) displays that all above the threshold
points are the fluctuations of the abnormal points.
Figures 4(e) and 4(f) display the plots of the DFA index of sunshine duration
for yellow soybean and corn, respectively. As shown in Fig. 4(e), the DFA index is
stable when the sunshine duration is less than 12.5 (unit: 0.1 h) or greater than
106.5 (unit: 0.1 h) but considerably varies when the duration is between 12.5 and
106.5. Thus, we can set s = 12.5 and s = 106.5 as the minimum and maximum
values of sunshine duration, that is, the threshold of extreme sunshine duration. As
shown in Fig. 4(f), s = 7.9 and s = 108.5 are the minimum and maximum values
of the relative sunshine duration of corn, respectively. As illustrated in Fig. 4(f),
the threshold of the extreme events can be obtained. Thus, we obtain the threshold
abnormal points of the sunshine duration of corn.
According to Figs. 4(a)–4(f) in the futures market to determine the points of
weather extreme events, which all points above the threshold are fluctuation abnor-
mal points.
4.4. Cross-correlation coefficient after

eliminating extreme weather
According to the extreme value of weather variables, we first use the linear inter-
polation method to replace extreme weather data and then study the DCCA cross-
correlation coefficient between weather conditions and agricultural futures markets.
Finally, we compare the differences after ruling out the extreme weather situation.
Figures 5(a)–5(f) show the respective DCCA cross-correlation coefficients of soy-
bean and corn returns before and after eliminating extreme temperature, humidity,
and sunshine duration. Figure 5(a) shows that DCCA cross-correlation coefficient
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0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
ρ
-0.2 -0.2
-0.3 -0.3
ρ ρ ρ ρ ρ ρ ρ ρ
DCCA1 DCCA2 c1 c2 DCCA1 DCCA2 c1 c2
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n

0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
-0.2 -0.2
-0.3 -0.3
ρ ρ ρ ρ ρ ρ ρ ρ
DCCA1 DCCA2 c1 c2 DCCA1 DCCA2 c1 c2
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n
0.3 0.3
0.2 0.2
0.1 0.1
(n)
(n)
0 0
DCCA
DCCA
-0.1 -0.1
ρ
-0.2 -0.2
-0.3 -0.3
ρDCCA1 ρDCCA2 ρc1 ρc2 ρDCCA1 ρDCCA2 ρc1 ρc2
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
n n
Fig. 5. DCCA cross-correlation coefficient before and after eliminating extreme temperature for
soybean (a), extreme temperature for corn (b), extreme humidity for soybean (c), extreme humid-
ity for corn (d), extreme sunshine duration for soybean (e) and extreme sunshine duration for corn
(f). Red curves and black represent DCCA cross-correlation coefficient ρDCCA1 and confidence
level ρc1 before the elimination of extreme weather, respectively. Blue curves and pink curves rep-
resent DCCA cross-correlation coefficient ρDCCA2 and confidence level ρc2 after the elimination
of extreme weather, respectively.
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is more significant after eliminating extreme temperature than without eliminating

the temperature variable, indicating that extreme temperature may affect cross-
correlation between temperature and soybean returns. On the contrary, Fig. 5(b)
represents that extreme humidity exerts no effect on the yield of corn apparently.
Figures 5(c) and 5(d) show that extreme humidity exerts a greater effect on the
yield of corn than on that of soybean, but the changes are not beyond the confi-
dence level, suggesting that extreme humidity has little overall effect on returns of
soybean and corn. From Figs. 5(e) and 5(f) it can be seen that sunshine duration
makes no difference in returns of soybean and corn.
In conclusion, Fig. 5 shows that extreme weather has not affected returns of
soybean and corn much, except that the yield rate of soybeans is subjected to
extreme temperatures.
5. Discussion
5.1. DMCA-based coefficient
As a complementary coefficient to the DCCA cross-correlation coefficient, based
on the detrending moving average procedure (DMA) [32] and detrending moving-
average cross-correlation (DMCA) [33, 34], Kristoufek [35] introduced DMCA coef-
ficient ρDMCA (k), with a moving average window length k. According to the steps
of DCCA cross-correlation coefficient, the DMCA-based correlation coefficient can
be rewritten as:
2
FDMCA (k)
ρDMCA (k) = (−1 ≤ ρDMCA (k) ≤ 1). (4)
Fx,DMA (k)Fy,DMA (k)
Kristoufek [35] referred to that DMCA coefficient has an indisputable advantage
that is the DMCA procedure is computationally much less demanding than the
DCCA cross-correlation coefficient. To guarantee the accuracy of the study, we
also use DMCA coefficient dealing with the relationship between weather data and
returns of agricultural futures market. We choose centered moving average type
(θ = 0.5) because Carbone and Castelli [36] proved the model shows best results
when θ = 0.5.
Figure 6 shows the DMCA coefficients between weather data and returns of
agricultural futures market. From Fig. 6, the most important findings are as fol-
lows. First, most ρDMCA values are not beyond the 95% confidence level. So the
correlations between weather and returns of agricultural futures market are not very
significant. Second, we find that a tiny fraction of the all ρDMCA exceed confidence
interval. This means that only under certain circumstances cross-correlations are
significant. Third, the fluctuation of the DMCA coefficients is basically similar to
the DCCA cross-correlation coefficients. In addition, the ρDMCA coefficient as an
alternative and a complement to the ρDCCA coefficient, we could not discriminate
the two coefficients which one has more advantages from Figs. 2 and 6.
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0.6 0.4
0.4 0.3
0.2
0.2
0.1
(k)
(k)
0
DMCA
DMCA
0
-0.2
ρ
ρ
-0.1
-0.4
-0.2
-0.6 -0.3
ρ ρ ρ ρ
DMCA c DMCA c
-0.8 -0.4
0 200 400 600 800 0 200 400 600 800
k k

0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
(k)
(k)
DMCA
DMCA
0 0
ρ
-0.1 -0.1
-0.2 -0.2
-0.3 -0.3
ρ ρ ρ ρ
DMCA c DMCA c
-0.4 -0.4
0 200 400 600 800 0 200 400 600 800
k k
0.4 0.4
0.3
0.2
0.2
0.1
(k)
(k)
0
DMCA
DMCA
0
ρ
-0.2 -0.1
-0.2
-0.4
-0.3
ρ ρ ρ ρ
DMCA c DMCA c
-0.6 -0.4
0 200 400 600 800 0 200 400 600 800
k k
Fig. 6. Plots of DMCA coefficients between temperature and soybean returns (a), temperature
and corn returns (b), humidity and soybean returns (c), humidity and corn returns (d), sunshine
duration and soybean returns (e), and sunshine duration and corn returns (f). Red lines represent
the value of ρDMCA and black lines represent 95% confidence level.
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5.2. DFA-based regression

Kristoufek [37] proposed a new framework combining detrended fluctuation analysis
with standard regression least squares fluctuation analysis. The method is designed
not only to estimate regression parameters at different scales, but also to provide
related standard errors and coefficients of determination. When studying depen-
dence between two series, we adopt this method to make a further verification.
Giving scale s, the estimation of the parameter of interest β is calculated as
2
FXY (s)
β̂ DFA (s) = 2 . (5)
FX (s)
Then we obtain scale-specific residuals ût (s) by using estimated β̂ DFA (s). DFA
framework as
F 2 (s)
R2 (s) = 1 − u2 , (6)
FY (s)
2 2
where FX (s), FXY (s) and Fu2 (s) can be seen as scale-dependent variance, covariance
and estimating variance, respectively.
Figure 7 shows effects of weather on returns of agricultural futures markets
for scales between 10 and 150 by merging standard regression least squares with
detrended fluctuation analysis. From Fig. 7, some important findings can be con-
cluded. First, the effects of temperature on soybean return and humidity on corn
return increase with an increasing scale, but the effects of other weather variables on
soybean and corn return have opposite case. Second, the effects between weather
factors and crop returns are weak for high scales but its strength increases for
lower scales. In addition, fluctuations of all β values vary strongly across scales.
It is unable to reach unity and all the values stay away from one. Finally, wide
350 100
300 50
estimated beta
estimated beta
250 0
200 -50
150 -100
100 -150
50 -200
β βc β=1 β βc β=1
0 -250
0 50 100 150 0 50 100 150
scale scale
Fig. 7. Temperature betas are for soybean return (a) and corn return (b), humidity betas are for
soybean return (c) and corn return (d), sunshine duration betas are for soybean return (e) and
corn return (f). Red curves and black curves represent scale-dependent beta values, respectively.
A dotted blue line represents a hypothetical weather-following market with β = 1.
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40 80
60
20
estimated beta
estimated beta
40
0
20
0
-20
-20
-40
-40
-60 -60
0 50 100 150 0 50 100 150
scale scale

150 150
100 100
50
estimated beta
estimated beta
50
0
0
-50
-50
-100
-100
-150
-150 -200
-200 -250
0 50 100 150 0 50 100 150
scale scale
Fig. 7. (Continued)
confidence intervals suggest low reliability of the estimates. All these suggest that
there are no strong correlations between weather factors and returns of soybean
and corn.
6. Conclusions
We investigate how weather conditions affect agricultural futures markets by using
DCCA cross-correlation coefficients and DFA methods.
We first focus on the correlation of non-stationary time series with the DCCA
method. Results show that the correlation between weather variables and returns
of agricultural futures is usually not significant as we predicted. However, a cor-
relation exists under some circumstances. In addition, based on the q-dependent
cross-correlation coefficient, there are some correlations between temperature and
soybean return associated with medium amplitudes.
We then discuss the impact of extreme weather on the futures market of agri-
cultural products. The DCCA cross-correlation coefficient of extreme weather is
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obtained using the DFA method. By comparing DCCA cross-correlation coeffi-

cients, we found that extreme temperature has a greater impact on the yield of soy-
bean, while extreme humidity and sunshine duration exert minimal effects. Besides,
extreme weather factors display minimal effects on corn yields.
Finally, we employ DMCA-based coefficient and DFA-based regression to find
out the whole correlations between weather and returns of soybean and corn are
not significant. This result is similar to that of DCCA cross-correlation coefficient.
Overall, the whole relationships between weather and the agricultural futures
markets are not very significant, but extreme temperature influences the futures
markets of soybean. It is assumed that the agricultural products of futures markets
with different standards are influenced by different weather variables because of
those different natural properties of these products.
However, to extend our study further analyses need to be done. We can study
more weather variables, such as cloud cover and wind. In addition, Qian et al. [27]
demonstrated the advantage of the DPXA coefficients over the DCCA coefficients,
so this method is worth further exploration.
Acknowledgments
We thank for the financial support from National Natural Science Foundation of
China (Nos. 71371100, 71271118, 71373131), the Humanities and Social Sciences
Fund sponsored by the Ministry of Education of the People’s Republic of China
(No. 13YJCZH007), and Key technologies and system development of evaluation
of service benefit and losses of typhoon/storm disaster (GYHY(201506015)). This
work also sponsored by Qing Lan Project of Jiangsu Province (2014), Program for
Innovative Research Team of Shanghai University of Finance and Economics and a
Project Funded by the Priority Academic Program Development of Jiangsu Higher
Education Institutions and a Project Funded by the Flagship Major Development
of Jiangsu Higher Education Institutions.
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Fluctuation and Noise Letters

Eﬀect of Weather on Agricultural Futures Markets

Guangxi Cao∗,†,‡ , Cuiting He† and Wei Xu†

and Evaluation of Meteorological Disasters

Nanjing University of Information Science & Technology

Received 30 October 2015

Communicated by Wei-Xing Zhou

Keywords: DCCA cross-correlation coeﬃcient; threshold; weather; agricultural futures.

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

proposed an extension of ρDCCA to systematically study the strength distribution of

paper is structured as follows. Section 2 explains data choice. Section 3 introduces

where wi is the weather variable in province i and αi is the proportion of crops

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

2.2. Data description

Table 1. Descriptive statistics for returns of soy-

Note: SR and CR denote the returns of soybean

Table 2. Descriptive statistics for three weather variables of soybean.

temp hum Sun de-temp de-hum de-sun

Table 3. Descriptive statistics for three weather variables of corn.

temp hum sun de-temp de-hum de-sun

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

3.2. Threshold estimation method

successively remove the values xi in section {xi , xi ≤ xmin + d× k} until xi = R,

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

(a) SR-TEMP (b) CR-TEMP

(c) SR-HUM (d) CR-HUM

(e) SR-SUN (f) CR-SUN

4.2. The q-dependent detrended cross-correlation coeﬃcient

impossible to obtain information on the amplitude of ﬂuctuations that are responsi-

4.3. Applied DFA method to deﬁne thresholds

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

0.95 original data original data

(a) TEMP-SOYBEAN (b) TEMP-CORN

(c) HUM-SOYBEAN (d) HUM-CORN

(e) SUN-SOYBEAN (f) SUN-CORN

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

4.4. Cross-correlation coeﬃcient after

(a) SR-TEMP (b) CR-TEMP

(c) SR-HUM (d) CR-HUM

(e) SR-SUN (f) CR-SUN

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

is more signiﬁcant after eliminating extreme temperature than without eliminating

(a) SR-TEMP (b) CR-TEMP

(c) SR-HUM (d) CR-HUM

(e) SR-SUN (f) CR-SUN

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

5.2. DFA-based regression

(a) SR-TEMP (b) CR-TEMP

(c) SR-HUM (d) CR-HUM

(e) SR-SUN (f) CR-SUN

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

obtained using the DFA method. By comparing DCCA cross-correlation coeﬃ-

Eﬀect of Weather on Agricultural Futures Markets on the Basis of DCCA Coeﬃcient

cross-correlations between non-stationary series, Physica A 406 (2014) 169.

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