The World Market For Soybeans: Price Transmission Into Brazil And Effects From The Timing Of Crop And Trade
This paper investigates the price transmission in the world market for soybeans using time series econometrics models. The theoretical model developed by Mundlack and Larson (1992) is based on the Law of the One Price, which assumes price equalization across all local markets in the long run and allows for deviations in the short run. The international market was characterized by three relevant soybean prices: Rotterdam Port, Argentina and the United States. The paper estimates the elasticity of transmission of these prices into soybean prices in Brazil. There were carried causality and cointegration tests in order to identify whether there is significant long-term relationship among these variables. There was also calculated the impulse-response function and forecast error variance decomposition to analyze the transmission of variations in the international prices over Brazilian prices. An exogeneity test was also carried out so as to check whether the variables respond to short term deviations from equilibrium values. Results validated the Law of the One Price in the long run. In line with many studies, this paper showed that Brazil and Argentina can be seen as price takers as long as the speed of their adjustment to shocks is faster than in the United States, the latter being a price maker. An interesting conclusion was reached when the pattern of the impulse response functions was compared to the timing of crop and trade in Brazil, Argentina and the United States. These seasonal differences may help explaining the pattern of the response of Brazilian prices to shocks in the international market, especially that the response from shocks in the United States is opposite to the response from shocks in Argentina because harvest in the two hemispheres occurs in different periods. In addition, the one-month lag between Brazilian and Argentine harvests may contribute to explain a turning point in the impulse-response function that occurs one month after the shock.
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