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Market Delineation and Price Leadership in the World Wheat Market: A Cointegration Analysis

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  • Ghoshray, Atanu

Abstract

Wheat types may be classified according to strength, a baking characteristic. Since the demand for wheat is derived demand, the baking characteristic is directly related to end use. Accordingly, the wheat classes that are used in this study are divided into sub-groups according to strength, that is, strong, medium, and weak wheats. Time-series methods are employed to determine how the different classes of wheats are related within each sub-group. The different wheats under the different sub-groups are found to be substitutes to various degrees, but form a robust cointegrating relationship, implying that the wheat prices in these markets are bound together by a long-term equilibrium relationship. Within each of the sub-groups, the U.S. wheats were found to act as a price leader, driving the prices of other wheats belonging in the same sub-group. These U.S. wheats were found to form no long-run relationship between each other given their distinct end uses. The study highlights the importance of differentiating wheat by end use to specify price linkages more accurately.

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Bibliographic Info

Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 35 (2006)
Issue (Month): 2 (October)
Pages:

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Handle: RePEc:ags:arerjl:10209

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Web page: http://www.narea.org/
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Related research

Keywords: cointegration; wheat; price leadership; market segmentation; International Relations/Trade;

References

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  1. Schroeder, Ted C. & Goodwin, Barry K., 1990. "Price Dynamics in International Wheat Markets," Staff Papers 118178, Kansas State University, Department of Agricultural Economics.
  2. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-85, October.
  3. Diakosavvas, Dimitris, 1995. "How integrated are world beef markets? The case of Australian and U.S. beef markets," Agricultural Economics, Blackwell, vol. 12(1), pages 37-53, April.
  4. Samarendu Mohanty & E. Wesley F. Peterson & Nancy Cottrell Kruse, 1995. "Price Asymmetry in the International Wheat Market," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 43(3), pages 355-366, November.
  5. Asche, F. & Bremnes, H. & Wessells, C.R., 1998. "Product Aggregation, Market Integration and Relationships Between Prices: an Application to World Salmon Markets," Papers 27/98, Norwegian School of Economics and Business Administration-.
  6. Kjell G. Salvanes, 1997. "Market Delineation and Demand Structure," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 139-150.
  7. David A Bessler & Jian Yang & Metha Wongcharupan, 2003. "Price Dynamics in the International Wheat Market: Modeling with Error Correction and Directed Acyclic Graphs," Journal of Regional Science, Wiley Blackwell, vol. 43(1), pages 1-33.
  8. Michele M. Veeman, 1987. "Hedonic Price Functions for Wheat in the World Market: Implications for Canadian Wheat Export Strategy," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 35(3), pages 535-552, November.
  9. Bruno Larue, 1991. "Is Wheat a Homogeneous Product?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 103-117, 07.
  10. Lloyd, Tim & McCorriston, S. & Morgan, C.W. & Rayner, A.J., 2001. "The impact of food scares on price adjustment in the UK beef market," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 25(2-3), September.
  11. Diakosavvas, Dimitris, 1995. "How integrated are world beef markets? The case of Australian and U.S. beef markets," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 12(1), April.
  12. Lloyd, Tim & McCorriston, S. & Morgan, C. W. & Rayner, A. J., 2001. "The impact of food scares on price adjustment in the UK beef market," Agricultural Economics, Blackwell, vol. 25(2-3), pages 347-357, September.
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