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Dissecting Corn Price Movements with Directed Acyclic Graphs

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  • Etienne, Xiaoli L.
  • Irwin, Scott H.
  • Garcia, Philip

Abstract

Corn prices experienced enormous volatility over the last decade. In this paper, we apply a structural vector autoregression model to quantify the relative importance of various contributing factors in driving corn price movements. The identification of the structural parameters is achieved through a data-determined approach—the PC algorithm of Directed Acyclic Graphs. We find that, in general, unexpected shocks in aggregate global demand and speculative trading activities do not have a statistically significant effect on corn price movements. By contrast, shocks in the crude oil market have large immediate effects that persist in the long-run. The forecast error variance decomposition suggest that at the two-year horizon, variations in crude oil prices account for over 50% of the total corn forecast error variances. We also find that, consistent with theory, unexpected shocks in market-specific fundamentals also have large negative effects on price movements. In addition, unexpected residual shocks play an important role in corn price movement, especially in the short-run.

Suggested Citation

  • Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2013. "Dissecting Corn Price Movements with Directed Acyclic Graphs," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151279, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea13:151279
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    File URL: http://purl.umn.edu/151279
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    References listed on IDEAS

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    More about this item

    Keywords

    corn; volatility; structural vector autoregressions; crude oil; speculative activities; graph theory; Crop Production/Industries; Demand and Price Analysis; D84; Q11; Q13; Q41;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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