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Cointegration and Causality Analysis of World Vegetable Oil and Crude Oil Prices

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Author Info

  • Yu, Tun-Hsiang (Edward)
  • Bessler, David A.
  • Fuller, Stephen W.

Abstract

Because of the recent soaring petroleum price and growing environmental concerns, biodiesel has become an important alternative fuel. Biodiesel is the mono alky esters made from a vegetable oil, such as soybean or rapeseed oil, or sometimes from animal fats. The escalation in world petroleum price has stimulated the demand for biodiesel, which consequently expanded the use of vegetable oils. This paper investigates the long-run interdependence between major edible oil prices and examines the dynamic relationship between vegetable and crude oil prices. The data consists of 378 weekly observations extending from the first week of January in 1999 to the fourth week of March in 2006. We apply time-series analytical mechanisms and directed acyclic graphs to four major traded edible oils prices, including soybean, sunflower, rapeseed and palm oils, along with one weighted average world crude oil price. Tentative results suggest one long-run cointegration relationship among those five oil prices. Also, the edible oil markets are well linked in contemporaneous time with the palm oil market initiating the new information; however, soybean oil price dominates the edible oil markets in the long run. The influence of crude oil price on edible oil prices is not significant over the study period.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21439.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21439

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Keywords: Resource /Energy Economics and Policy;

References

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  1. Beghin, John C. & Dong, Fengxia & Elobeid, Amani E. & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovarik, Karen & Tokgoz, Simla & Yu, Tun-Hsiang (Edward) & Wailes, Eric J. & Chavez, Eddi, 2006. "FAPRI 2006 U.S. and World Agricultural Outlook," Staff Reports 7319, Food and Agricultural Policy Research Institute (FAPRI).
  2. Kevin Hoover & Selva Demiralp, 2003. "Searching for the Causal Structure of a Vector Autoregression," Working Papers 33, University of California, Davis, Department of Economics.
  3. Beghin, John C. & Dong, Fengxia & Elobeid, Amani E. & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovarik, Karen & Tokgoz, Simla & Yu, Tun-Hsiang (Edward) & Wailes, Eric J. & Chavez, Eddi, 2007. "FAPRI 2007 U.S. and World Agricultural Outlook," Staff Reports 7296, Food and Agricultural Policy Research Institute (FAPRI).
  4. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  6. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September.
  7. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
  8. David A. Bessler & Seongpyo Lee, 2002. "Money and prices: U.S. Data 1869-1914 (A study with directed graphs)," Empirical Economics, Springer, vol. 27(3), pages 427-446.
  9. In, Francis & Inder, Brett, 1997. "Long‐run Relationships Between World Vegetable Oil Prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(4), December.
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Citations

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Cited by:
  1. Campiche, Jody L. & Bryant, Henry L. & Richardson, James W. & Outlaw, Joe L., 2007. "Examining the Evolving Correspondence Between Petroleum Prices and Agricultural Commodity Prices," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9881, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Nazlioglu, Saban & Soytas, Ugur, 2011. "World oil prices and agricultural commodity prices: Evidence from an emerging market," Energy Economics, Elsevier, vol. 33(3), pages 488-496, May.
  3. Peri, Massimo & Baldi, Lucia, 2008. "Biodiesel and vegetable oil market in European Union: some evidences from threshold cointegration analysis," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43971, European Association of Agricultural Economists.
  4. Natanelov, Valeri & Alam, Mohammad Jahangir & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2011. "Is There Co-Movement of Agricultural Commodities Futures Prices and Crude Oil?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114626, European Association of Agricultural Economists.
  5. Vasciaveo, M. & Rosa, F. & Weaver, R., 2013. "Agricultural market integration: price transmission and policy intervention," 2013 Second Congress, June 6-7, 2013, Parma, Italy 149887, Italian Association of Agricultural and Applied Economics (AIEAA).
  6. Matthias Diermeier & Torsten Schmidt, 2012. "Oil Price Effects on Land Use Competition – An Empirical Analysis," Ruhr Economic Papers 0340, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Mutuc, Maria Erlinda M. & Pan, Suwen & Hudson, Darren, 2010. "Response of Cotton to Oil Price Shocks," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56425, Southern Agricultural Economics Association.
  8. Aynur Pala, 2013. "Structural Breaks, Cointegration, and Causality by VECM Analysis of Crude Oil and Food Price," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 238-246.
  9. Sanders, Daniel J. & Balagtas, Joseph Valdes & Gruere, Guillaume P., 2011. "Revisiting the palm oil boom: An examination of consumption in the oils complex," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103726, Agricultural and Applied Economics Association.
  10. Peri, Massimo & Baldi, Lucia, 2013. "The effect of biofuel policies on feedstock market: Empirical evidence for rapeseed oil prices in EU," Resource and Energy Economics, Elsevier, vol. 35(1), pages 18-37.
  11. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
  12. Wang, Xiao & Zhang, Chuanguo, 2014. "The impacts of global oil price shocks on China׳s fundamental industries," Energy Policy, Elsevier, vol. 68(C), pages 394-402.
  13. Zhang, Qiang & Reed, Michael R., 2008. "Examining the Impact of the World Crude Oil Price on China's Agricultural Commodity Prices: The Case of Corn, Soybean, and Pork," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6797, Southern Agricultural Economics Association.
  14. Nazlioglu, Saban & Soytas, Ugur, 2012. "Oil price, agricultural commodity prices, and the dollar: A panel cointegration and causality analysis," Energy Economics, Elsevier, vol. 34(4), pages 1098-1104.
  15. Subhani, Muhammad Imtiaz & Hasan, Syed Akif & Osman, Ms. Amber, 2012. "Are the Prices of Light Diesel Oil, Gasoline, CNG and Kerosene Oil Co-Integrated?," MPRA Paper 45142, University Library of Munich, Germany.
  16. Peri, Massimo & Baldi, Lucia, 2010. "Vegetable oil market and biofuel policy: An asymmetric cointegration approach," Energy Economics, Elsevier, vol. 32(3), pages 687-693, May.
  17. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.

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