Is corn still king? Unravelling time-varying interactions among soft commodities

This paper explores correlation dynamics among agricultural commodities, crucial for risk mitigation and portfolio management, particularly within volatile soft commodities. Previous studies have found a significant increase in correlations among soft commodities, with corn found to exhibit the largest correlation with other commodities Recently, soft commodities have experienced both increasing price volatility and increasing liquidity. This paper examines twelve commodities from January 2013 to September 2023 using a dynamic connectedness framework. The results confirm agricultural commodity market integration as a high level of interconnectedness is found. Soybeans, canola and corn are found, on average, to be the net transmitters of volatility in the network, with corn being the only commodity to remain a net transmitter with positive net directional connectedness values for the full sample period. The influencing role of corn on soft commodity price volatility is therefore confirmed. Coffee and wheat are also found to be net transmitters of volatility. Significantly, the paper underscores the growing influence of edible oils like canola, palm oil and soybean oil in network analyses, a contribution yet to be documented. Given the diverse industrial and cross-sector applications of these commodities as raw materials, these findings have important implications for various stakeholders across agribusinesses, as well as for both hedgers and speculators active in commodity futures markets.