delivery possibilities of other classes of wheat, the CBOT contract is considered more reflective of global wheat conditions. In addition, the class of wheat traded at the CBOT most closely resembles the type of wheat grown in Poland. For these reasons, the CBOT contract was chosen as the price to be used in this analysis. Outside the US, the most liquid wheat futures contract is the LIFFE wheat futures. This futures contract was also included in the analysis.<sup>8</sup> The analysis was carried out over a period of 6 years, i.e., from 1990 to 1995. This period represents the time during which Poland experienced a liberalized economic structure. Despite the beginnings of a free market system, finding a representative price series in Poland to compare against futures prices is somewhat problematic. While several grain exchanges exist where physical cash wheat is traded, the volume of trade is erratic and quoted prices might not be representative of the overall market. In addition, most of these exchanges were created only recently, thereby limiting the time frame available for analysis. The Polish price series chosen for the analysis was average monthly wheat prices for Poland as reported by the Central Statistical Office (GUS). This price represents prices paid to farmers by commercial enterprises. Price analysis was conducted on both a calendar year and crop year (August-September) basis as both have some merit in terms of looking at impacts of various factors.

# 2. Wheat Price Variation in Poland in **Years 1990-95**

The first analytical task chosen was to gain insight into the price variation in Poland with respect to variation over time and spatially within Poland. The primary objective of examining variation over time was to gain insight into the degree of Polish price volatility. The basic methodology used was to quantify the spread of minimum and maximum prices and the coefficient of variation (standard deviation divided by average prices for each year).

The purpose of the spatial variation analysis was to determine if prices within Poland showed any significant variation between regions. This has implications from a risk management standpoint as large variations between regions would suggest that there are variations in the basis risk that individual firms might encounter. Measuring the spatial variation in prices also gives insight into the level of integration of the Polish wheat market. If the market is operating efficiently, there should be a relatively stable price relationship between regions in Poland. The general method of looking at spatial variation was to observe minimum and maximum prices for each month throughout the 49 voivodships of Poland and to create a ratio of maximum versus minimum prices.

# 2.1. Variation over Time

As is shown in Table 1, there is a great deal of variation observed over time in wheat prices in Poland. Prices tend to be very volatile especially in years of shortages when supply of wheat is considerably lower compared with average years. As can be seen in the Polish wheat balance table in Table 3, the 1992/93 and 1994/95 production years were characterized by low production due to drought and low ending inventories. These years correspond to greater than normal price volatility.

" As noted later in the paper, LIFFE wheat futures contract prices are influenced by the EU's agricultural policies (CAP) for grains.

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