Spatial price transmission on agricultural commodity markets under different volatility regimes

Agricultural commodity markets have been affected by a rise in volatility since 2006. In this context, this paper proposes to analyze the impact of volatility on market linkages for a homogenous commodity. The methodology is based on the cointegration framework. More specifically, Threshold Vector Error Correction Models (TVECM) with two regimes are estimated. Unlike other studies, the regime switch is triggered by the level of volatility and not by trade. The empirical study is done on rapeseed, corn, feed barley and protein pea French markets over 2006–2013. Empirical results show that in a high volatility regime, price deviations from the long term equilibrium are corrected faster and the price equilibration process after a price shock takes less time. Moreover, it appears that the information in the reference (producer) price becomes more relevant for commodities with (without) a futures market when the volatility rises. Nonetheless, these results are more pronounced with an ex ante than an ex post volatility measure.