A quantile autoregression analysis of price volatility in agricultural markets

This paper investigates the dynamics of agricultural price volatility based on a quantile autoregression (QAR) model. The QAR model provides a flexible representation of the distribution of price and its dynamics. The approach is applied to U.S. wheat and corn markets over the period of 1980–2017. This period is of significant interest as it covers important changes in agricultural policy and increased reliance on markets. The price analysis is conducted conditional on stocks held in the previous period. We show how increasing previous stocks shift the price distribution to the left and decreases the odds of facing price spikes (by shifting down the upper tail of the price distribution). Our analysis also examines the effects of changing public stocks on prices. For both wheat and corn, this reflects changing agricultural policy, contrasting the 1980s (when public stocks were relatively high) with the post-2005 period (when public stocks became zero). We document how higher public stock ratio during the previous period did not lower the odds of facing price spikes. Applied to the wheat and corn markets, we also uncover evidence of local dynamic instability in the upper tail of the price distribution, suggesting that price instability becomes more pronounced when previous stocks are low.     

Grain price stabilization in India: Evaluation of policy alternatives

Stabilization of prices is an important element of food policy in India as in most other countries — both developing and eveloped. However, since the magnitude of grain stocks held for this purpose as well as the costs of physical storage have become prohibitively high, there is now a need for finding cost-effective alternatives including non interventionist and market-oriented methods for price stabilization. In this paper we consider the case of rice and wheat which are staple foodgrains in India. We make a comparison between alternative price stabilization policies including that of holding buffer stocks in terms of their impact on domestic price stability, producer and consumer welfare and government costs. A multi-market equilibrium framework is used where private storage, consumption, supply and prices of rice and wheat are determined simultaneously. Indian exports and imports are assumed to affect world prices. The alternative price stabilizing mechanisms are ranked according to both the criteria, welfare and price stability achieved. The main findings are as follows. The ranking of alternatives varies with the criterion used. Greater price stability need not necessarily imply greater welfare. The option of variable levies on private external trade turns out to be the most inexpensive and that of domestic buffer stocks the costliest in achieving price stability. Further, the efficacy of buffer stocks and subsidy to private storage in stabilizing prices is lower under free trade as compared to the case where the economy is closed to private external trade.     

Structural Change and Long‐run Relationships between US and EU Wheat Export Prices

This paper analyses the nature of the long‐run relationship between US and EU wheat export prices over the period 1981–2000. We employ a novel approach of testing for cointegration with structural change developed by Barassi and Taylor (A Test for Change in the Cointegrating Rank, University of Birmingham, Birmingham, 2004). The method enables us to determine the breakpoint, which is found to occur after the 1992 CAP reforms were implemented. On analysing the two separate subperiods, we find no evidence of a long‐run relationship prior to the 1992 CAP reform. However, clear evidence of a long‐run relationship is found after the CAP reforms were implemented. Further analysis reveals that, in the post‐CAP reform period, the EU wheat prices follow then US soft wheat prices, consistent with the EU export subsidy regime over this period, albeit that export subsidies by the EU have been relatively small.     

Food Grain Policies in India and their Implications for Stocks and Fiscal Costs: A Dynamic Partial Equilibrium Analysis

We analyse current and possible future reforms of the Indian food policies for the most important staple grains, wheat and rice, within a two‐commodity dynamic partial equilibrium model with stochastic shocks. The model is empirically grounded and reproduces past values well. It uses a new reduced‐form approach to capture private storage dynamics. We evaluate the implementation of the National Food Security Act (NFSA) under several policy measures with the current regime as well as two scenarios with a regime change – implementation of cash transfers and deficiency payments. Implications for market fundamentals and fiscal costs are simulated in the medium term – until 2020/21. The NFSA puts a high pressure on fiscal costs and public stocks. Relying on imports with low support prices results in low fiscal costs and stable, but higher domestic and international prices, and a high risk of zero stocks. A policy strategy to manipulate procurement prices in order to maintain public stocks close to the norms leads to slightly higher fiscal costs with lower, but more volatile prices. The highest domestic price volatility occurs under a strategy which uses export bans in order to maintain sufficient public stocks. A cash‐based regime can bring considerable savings and curb fiscal costs, particularly if targeted to the poor, and would leave sufficient stocks due to higher private stocks.     

Price relationships between qualitatively differentiated agricultural products: organic and conventional wheat in Germany

Organic agriculture, which produces commodities that can be qualitatively differentiated from conventional food products, has grown into an important market in many countries. The dynamics of commodity prices in both sectors are partly interdependent, but are also shaped by independent determinants and have rarely been studied. We analyze organic food markets and their interdependencies with conventional markets in the context of wheat markets in Germany, which have been subject to a number of fundamental changes during the last two decades. Based on institutional market characteristics, we suggest a flexible Markov‐switching asymmetric time series model. We find a pronounced temporal sequence of market phases that differ in their asymmetric dynamics and the extent to which the organic price is influenced by the conventional price. Organic wheat prices tend to be increasingly connected to prices of conventional wheat.     

Using a functional approach to test trending volatility in the price of Mexican and international agricultural products

In this article, we extend the traditional GARCH(1,1) model by including a functional trend term in the conditional volatility of a time series. We derive the main properties of the model and apply it to all agricultural commodities in the Mexican CPI basket, as well as to the international prices of maize, wheat, swine, poultry, and beef products for three different time periods that implied changes in price regulations and behavior: before the North American Free Trade Agreement (NAFTA; 1987–1993), post‐NAFTA (1994–2005), and commodity supercycle (2006–2014). The proposed model seems to adequately fit the volatility process and, according to heteroscedasticity tests, also outperforms the ARCH(1) and GARCH(1,1) models, some of the most popular approaches used in the literature to analyze price volatility. Our results show that, consistent with anecdotal evidence, price volatility trends increased from the period 1987–1993 to 1994–2005. From 1994–2005 to 2006–2014, trends decreased but the persistence of volatility increased for most products, especially for international commodities. In addition, we identify some agricultural products such as avocado, beans, and chicken that, due to their increasing price volatility trends in the 2006–2014 period, may present a risk for food inflation in the short run.     

Threshold Cointegration in the Greek Milk Market

This article investigates the nonlinear adjustment between consumer and producer prices in the Greek milk sector using a threshold error correction autoregressive model. The results reject the null hypothesis of linear cointegration in favor of a 2-regime threshold cointegration model. A cointegrating relationship is expected only when equilibrium consumer price is decreased more than 24.12% or the equilibrium relative markup is squeezed more than 62.74%. In this case consumer prices have to increase faster than producer prices to restore the long-run equilibrium between consumer-producer milk prices.     

The Impact of Biofuel Policies on Crop Acreages in Germany and France

A major concern about biofuels is that increasing biofuel feedstock demand reduces availability of crops for food and feed leading to higher food prices. This paper investigates relations between biofuel policies and prices of rapeseed, the major feedstock used for biodiesel production in Europe, and the impact of rapeseed prices on crop acreages in Germany and France. Biodiesel is an important biofuel in Europe, and Germany and France are the largest biodiesel producers in Europe. First, the various biofuel policies in Germany and France are discussed, followed by an analysis of their effects on rapeseed prices. Although theory indicates that such effects exist, we could not find empirical evidence for them. Second, using regional land use panel data from Germany and France we investigate empirically whether crop shares have been affected by rapeseed prices in the period 2000–2015 and whether these price effects changed because of biofuel policy changes. Results show that wheat shares in Germany and France did respond to rapeseed prices, but barley shares did not. Moreover, mandatory blending introduced in Germany in 2007 and production quotas introduced in France in 2005 led to a stronger effect of rapeseed prices on wheat shares, but again did not affect barley shares.     

The influence of proximity to market on bean producer prices in Nicaragua

Transport costs are an important determinant of smallholder welfare in developing countries. In particular, transport costs influence the prices that smallholders receive for their produce. We propose a simple way of quantifying this influence. Taking the example of bean producers in Nicaragua, we employ a hedonic price model to estimate the effects of a smallholder's proximity to markets on the prices that he/she receives, while controlling for other factors such as the volume and quality of beans sold. We find that on average each additional minute of travel time reduces farm gate prices by 2.5 cents per quintal. Based on these results, the annual income from bean sales of the average smallholder in our sample would increase by between 24 and 110 USD if travel time to markets were reduced by 25%. Estimates of this nature can make an important contribution to cost–benefit assessments of infrastructure investments.     

Peer effects in the diffusion of water‐saving agricultural technologies

We investigate the role of peer effects in the diffusion of an important water‐saving irrigation technology: low energy precise application (LEPA). Using detailed irrigation behavior data for growers in the High Plains Aquifer region of Kansas covering 1990–2014, we find clear evidence of peer influence in adoption of LEPA, net of environmental factors. Specifically, an additional neighboring LEPA installation within 1 km increases the probability of adoption by about 0.3 percentage points, on average, and this effect diminishes with distance. Our empirical estimates indicate that in the absence of peer effects, LEPA adoption would have been about 10% lower (1,000–1,600 fewer installations) per year. In addition, we find that growers install LEPA in response to higher energy prices.     

CANADIAN WHEAT ACREAGE RESPONSE*

In spite of the criticisms which have been levied against statistical estimation of supply response, it is used in this study to determine the factors causing yearly fluctuations in Canadian wheat acreage. The estimates are derived from 1947–1966 time series data. In formulating price expectations, both the traditional and distributed lag models are used.
It was found that wheat acreage response is not a random process. From a statistical standpoint, wheat and flax prices, wheat stocks on farms, and export sales did affect farmers' wheat acreage decisions. Among the elasticities computed, those for wheat prices were the largest but generally less than one. Barley prices, rainfall prior to seeding, and cattle prices were also considered but did not appear to have a serious influence on wheat acreage.     

A Statistical Analysis of Wheat Price Fluctuations in England: 1685–1850

For some commodities and time periods, the analysis of price fluctuations must necessarily rely on the existence of price data alone. A theory applicable in such circumstances is outlined for commodities that are storable, traded in open markets and subject to net supply shocks which are heterogeneously distributed across the months of the year. Market prices are predicted to vary autoregressively except at times when wheat stocks become negligible and observed market prices exceed threshold prices (which may themselves differ across months). The model is applied to a monthly time series of wheat prices for southern England from 1685 to 1850. The autoregressive parameter and the threshold prices are estimated, substantial empirical support being found for the models tested. Historical events from the late seventeenth century through to the continental wars in the late eighteenth and early nineteenth centuries are used to illustrate the mechanisms underlying the theory.     

On farmland prices and rents in Japan

Historically, the Japanese farmland market has been strongly regulated, although fundamental changes in policy were introduced in 1967 and 1980. This article examines the relationship between farmland prices and rents in Japan for 1955–2000 using the cointegration procedure of Johansen et al. (2000) , which admits structural breaks. Results show the presence of a cointegrating relationship with a significant break in 1980. There is Granger‐causality from prices to rents, which suggests that rents are determined within an institutional setting according to farmland prices. The rent–price elasticity is unity, which supports the notion of efficiency in the farmland market.     

Evaluating the impact of rising fertilizer prices on crop yields

Because of tensions on fossil energy and phosphorus markets, the rise in fertilizer prices observed during the last decades may continue in the future, putting into question production pathways relying heavily on crop intensification. To evaluate how, in this context, economic choices may alter crop yields, we first construct different fertilizer price scenarios to 2050 based on an econometric relation with oil and gas prices. Other possible scenarios, such as the continuation of historical trends, are also considered. The resulting changes in fertilizer price range between +0.8% and +3.6% per year over the 2005–2050 period. These scenarios are tested in a global land‐use model incorporating an endogenous representation of the land–fertilizer substitution. We find that the supply‐side response to rising fertilizer prices could lower crop yields in 2050 from ?6% to ?13%, with a corresponding increase in global cropland area ranging between 100 and 240 Mha if the demand for food and nonfood products has to be met. The sensitivity of these results is tested with regard to assumptions on food consumption, change in potential yield and nutrient use efficiency.     

Black Sea and World Wheat Market Price Integration Analysis

In 2008–10, Russia and Ukraine together exported an average of 29 million tons of wheat per year, and have become important players in the international wheat market. This research summarizes the short‐ and long‐run wheat price dynamics between Ukraine and Russia, and other major wheat exporters—the United States, European Union (EU), and Canada—from 2004 to 2010. Tests of market price co‐integration (Johansen maximum likelihood test and residual‐based tests) as well as threshold error correction techniques were performed for this purpose. The results suggest that Russian wheat prices were co‐integrated with EU and U.S. wheat prices but not with Canadian wheat prices. Ukrainian wheat prices were found to be co‐integrated with French wheat prices only. The estimated long‐run wheat price transmission elasticities were estimated to be equal to 1.04 between Russian and French (a representative country of the EU) wheat prices, 1.16 between Russian and U.S. wheat prices, and 1.05 between Ukrainian and French wheat prices. We also found the short‐term relationships between the co‐integrated series to be statistically significant. Price adjustments in all co‐integrated prices were found to be symmetric.     

Food scares, market power and price transmission: the UK BSE crisis

This paper is concerned with the impact of food scares, principallythe BSE crisis in the UK, and focuses on price transmissionin vertically related markets. We show that if market powerhas an effect on the farm–retail margin, this determinesthe specification of the cointegrating relationship and thusprovides a test of market power. The results for the UK beefchain suggest that we cannot reject the importance of marketpower. The impact of the BSE crisis on farm prices is foundto be more than double that on retail prices, thus corroboratingpublic concerns regarding a differential impact of food scareson retailers and producers.     

Measuring the Volatility of Wheat Futures Prices on the LIFFE

Agricultural prices rose dramatically in 2007 and have subsequently fluctuated at high levels. This paper estimates the volatility of daily wheat futures prices on the Euronext/London International Financial Futures and Options Exchange for 1996–2012 using an exponential generalised autoregressive conditional heteroscedasticity model with a constant (price) elasticity of variance (CEV) and a broken trend. Results show that volatility is highly persistent; there is a structural break in volatility in June 2007 when volatility rose by 10%; subsequently, the wheat futures price has become more volatile; and the CEV is 0.04.     

Destabilizing role of futures markets on North American hard red spring wheat spot prices

The objective of the paper is to determine if the futures prices of hard red spring wheat (HRSW) have stabilizing or destabilizing impact on spot HRSW price in North America. Several important results emerge from thorough empirical analysis. First, both Granger causality tests and directed acyclic graph algorithms (DAGs) point to two-way causality between futures and spot HRSW prices and thus endogeneity in both prices formation. To the contrary, both procedures suggest that ending stocks are exogenous to spot and futures HRSW prices. Both vector error correction model and impulse response functions point to a large and long-lasting impact of a shock to futures price on spot price level. Finally, variance decomposition analysis indicates that futures prices are responsible for the bulk of spot price volatility in both short and long run. Our result is consistent with those of theoretical models suggesting that when production (supply side) is the dominant disturbance, spot price is destabilized in both the short and the long run by futures prices. An important implication of this research is the need for alternative market mechanisms or alternative farm policy measures that would mitigate price risk and ensure sustainable farming of American HRSW farmers.     

Tractors on eBay: Differences between Internet and In-Person Auctions

We provide a systematic examination of the differences between Internet and in-person auction prices for used tractors. A hedonic model estimated with transactions pooled between eBay and in-person auctions reveals statistically distinct price surfaces for the two auction venues and predicts significantly lower prices for comparable equipment sold on eBay, though this difference is attenuated for tractors fully covered by eBay's buyer protection program and is fully absent for the most frequently traded tractor. An endogenous venue selection model reveals that larger, more valuable tractors from states with more valuable stocks of machinery are more likely to be offered on eBay.     

Economic impacts of the Black Sea Grain Initiative

In this research, we use econometric analysis to estimate the impacts of the Black Sea Grain Initiative on international wheat and corn prices. Using these results, we assess the economic value of the treaty to the global food system, as well as the regional distribution of the associated welfare savings. We find that the Russian Invasion created economic costs of approximately $116.05 billion in the global wheat and corn markets. In the international wheat market, the Black Sea Grain Initiative reduced prices by 7.9%, offsetting approximately $21.48 billion of these costs. The largest winners from the Initiative outside Ukraine are primarily in the developing world, particularly in the Middle East and North Africa. We do not observe any economically meaningful impacts of the Initiative in the international corn market.