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Price Formation in the World Soybean Oil Market - An Econometric Analysis

Author

Listed:
  • CSC Sekhar

    (Institute of Economic Growth, University of Delhi Enclave, Delhi - 110 007, INDIA.)

Abstract

The present study attempts to analyze the price formation mechanism in the world soybean oil market in a competitive framework. The determinants of world soybean oil price are identified by estimating the equations for exports/imports and the border prices of the major exporting and importing countries, using a structural simultaneous equations model. The results of the study indicate that the major determinants of world soybean oil price are the world palm oil price (substitute) and the level of soybean oil exports in the world market. The simulation results of the impact of projected trends in the world soybean oil production for medium term (2015) show the following. The increase in supply-demand gap (due to increases in consumption and decreases in production) in the major exporting countries, combined with a likely fall in world palm oil price (due to an increasing trend in palm oil production), are likely to result in a decline in the world exports and world price of soybean oil. The likely fall in the world palm oil price is expected to result in much larger quantum of palm oil imports into India in future, which in turn, may have implications for the livelihood security of soybean farmers in the dry regions of the country.

Suggested Citation

  • CSC Sekhar, 2008. "Price Formation in the World Soybean Oil Market - An Econometric Analysis," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 43(2), pages 183-204, December.
  • Handle: RePEc:dse:indecr:v:43:y:2008:i:2:p:183-204
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    More about this item

    Keywords

    Price Formation; World Soybean Market; Edible Oil Price;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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