Wheat stocks and the cointegration of wheat prices |
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Authors: | Peter Slade Richard Gray |
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Institution: | Department of Agricultural and Resource Economics, University of Saskatchewan, Saskatoon, Canada |
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Abstract: | We examine the effect of wheat stocks on the relationship between port and inland wheat prices in western Canada after the dissolution of the Canadian Wheat Board in 2012. Standard statistical tests find no evidence that the port price is cointegrated with inland prices. We argue that large harvests in 2013–2014 and 2014–2015 are responsible for this lack of cointegration. A simple theoretical model demonstrates how wheat stocks drive a wedge between inland and port prices. After including wheat stocks in the cointegrating vector, we find the expected cointegrating relationships between the port and inland prices. Using an error correction model, we show that a 10% increase in the wheat stocks reduces producer prices in Alberta and Manitoba by 6% and 4%, respectively. We conclude by discussing policy options for reducing the size of wheat stocks on the prairies. |
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Keywords: | cointegration congestion pricing wheat prices |
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