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Testing for bubbles in agricultural commodity markets

Author

Listed:
  • Areal, Francisco J.
  • Balcombe, Kelvin G.
  • Rapsomanikis, George

Abstract

Food price volatility spells have fuelled the debate about the reliability of world markets as a source of food. At the heart of this debate lies the question of whether food price spikes are generated by the forces of demand and supply, or by speculation. We test for 'bubble' behaviour ' movements in the prices that cannot be explained by market fundamentals ' by applying the generalized version of the supremum Augmented Dickey-Fuller to several food price indices and 28 agricultural commodity prices. Our findings suggest that few food commodities exhibited bubble behaviour during the 2008 food price episode, with the price surges of 2010 and 2011 being due to market fundamentals. These spells of explosive behaviour are, in general, short-lived. Other commodities, which are also traded in futures markets, appear to respond only to the forces of supply and demand. Market conditions, such as stagnant productivity growth and low carry-over stocks, tend to shape the effect of speculation on prices. In some markets, trade policies, such as export bans, also appear to be crucial in generating bubble behaviour in prices.

Suggested Citation

  • Areal, Francisco J. & Balcombe, Kelvin G. & Rapsomanikis, George, "undated". "Testing for bubbles in agricultural commodity markets," ESA Working Papers 288981, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    • Handle: RePEc:ags:faoaes:288981
    DOI: 10.22004/ag.econ.288981
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    Cited by:

    1. Butt, Muhammad Danial & Ahmed, Mumtaz, 2019. "Testing for Multiple Bubbles in Inflation for Pakistan," MPRA Paper 96847, University Library of Munich, Germany.
    2. Etienne, Xiaoli L., 2015. "Financialization of Agricultural Commodity Markets: Do Financial Data Help to Forecast Agricultural Prices?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205124, Agricultural and Applied Economics Association.
    3. Itamar Caspi & Nico Katzke & Rangan Gupta, 2014. "Date Stamping Historical Oil Price Bubbles: 1876-2014," Working Papers 201445, University of Pretoria, Department of Economics.
    4. Kübra Akyol Özcan, 2023. "Food Price Bubbles: Food Price Indices of Turkey, the FAO, the OECD, and the IMF," Sustainability, MDPI, vol. 15(13), pages 1-21, June.
    5. Jeanne Diesteldorf & Sarah Meyer & Jan Voelzke, 2016. "New evidence for explosive behavior of commodity prices," CQE Working Papers 5016, Center for Quantitative Economics (CQE), University of Muenster.
    6. Fantazzini, Dean, 2016. "The oil price crash in 2014/15: Was there a (negative) financial bubble?," Energy Policy, Elsevier, vol. 96(C), pages 383-396.
    7. Rosa, Franco & Vasciaveo, Michela & Weaver, Robert D., 2014. "Agricultural and oil commodities: price transmission and market integration between US and Italy," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 3(2), pages 1-25, August.
    8. Ayben Koy, 2018. "Testing Multi Bubbles for Commodity Derivative Markets: A Study on MCX," Business and Economics Research Journal, Bursa Uludag University, Faculty of Economics and Administrative Sciences, vol. 9(2), pages 291-299.
    9. Caspi, Itamar & Katzke, Nico & Gupta, Rangan, 2018. "Date stamping historical periods of oil price explosivity: 1876–2014," Energy Economics, Elsevier, vol. 70(C), pages 582-587.
    10. Mumtaz Ahmed & Liviu Marian Matac & Naureen Maqbool & Asma Salman & Muthanna G. Abdul Razzaq & Lara Al-Haddad & Codruta Daniela Pavel, 2024. "Bubbles Identification in an Emerging Economy and Within Stock Markets of its Trading Partners: Evidence from a GSADF Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-27, December.
    11. Binge, Laurie H. & Boshoff, Willem H., 2021. "Measuring alternative asset prices in an emerging market: The case of the South African art market," Emerging Markets Review, Elsevier, vol. 47(C).
    12. Laurie Binge & Willem H Boshoff, 2016. "Modelling South African Art Prices: An analysis of post-2000 price behaviour," Working Papers 18/2016, Stellenbosch University, Department of Economics.
    13. repec:ipg:wpaper:2014-586 is not listed on IDEAS
    14. Aktham Maghyereh & Hussein Abdoh, 2022. "Can news-based economic sentiment predict bubbles in precious metal markets?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-29, December.
    15. El Montasser, Ghassen & Malek Belhoula, Mohamed & Charfeddine, Lanouar, 2023. "Co-explosivity versus leading effects: Evidence from crude oil and agricultural commodities," Resources Policy, Elsevier, vol. 81(C).
    16. Butt, Muhammad Danial & Ahmed, Mumtaz, 2019. "Testing for Multiple Bubbles in Inflation for Pakistan," MPRA Paper 96705, University Library of Munich, Germany.
    17. Irwin, Scott H., 2020. "Trilogy for troubleshooting convergence: Manipulation, structural imbalance, and storage rates," Journal of Commodity Markets, Elsevier, vol. 17(C).
    18. Fatima, Hira & Ahmed, Mumtaz, 2019. "Testing for Exuberance Behavior in Agricultural Commodities of Pakistan," MPRA Paper 95304, University Library of Munich, Germany.
    19. Kräussl, Roman & Lehnert, Thorsten & Martelin, Nicolas, 2016. "Is there a bubble in the art market?," Journal of Empirical Finance, Elsevier, vol. 35(C), pages 99-109.
    20. Caramugan, Karlo Martin & Bayacag, Purisima, 2016. "Price Bubble in Selected ASEAN Agricultural Exports: An Application of the Generalized Supremum Augmented Dickey Fuller," MPRA Paper 74807, University Library of Munich, Germany.
    21. Moreno-Pérez, Olga M. & Marcossi, Gisele P.C. & Ortiz-Miranda, Dionisio, 2017. "Taking stock of the evolution of the biodiesel industry in Brazil: Business concentration and structural traits," Energy Policy, Elsevier, vol. 110(C), pages 525-533.

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • 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

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