Driving Black Sea Grain Prices: Evidence on CBoT Futures and Exchange Rates

Over the last two decades, the Black Sea region developed to be a key global exporting region for corn and wheat. However, many market participants grapple with insufficient knowledge of factors that drive Black Sea spot prices, while effective futures markets that could facilitate price discovery and risk management are still missing. In our study, we identify marketspecific drivers of volatility of Ukrainian corn and Russian wheat prices. We use daily Black Sea spot price indices for both grains to estimate non-parametric realized volatility measures. These are regressed on several potential drivers, namely, respective futures prices, exchange rates, oil prices and freight rates that serve as a proxy for demand shifts. Estimation results suggest that Ukrainian corn price volatility is well explained by futures price movements and demand shifts, while Russian wheat markets are rather isolated from futures price movements and mostly depend on own lagged volatility and exchange rate movements. Additionally, we find asymmetric responses to price movements at the CBoT: both Black Sea markets react significantly stronger to price increases at the CBoT than to price decreases.