The Dynamics of Energy-Grain Prices with Open Interest
This paper examines the short- and long-run daily relationships for a grain-energy nexus that includes the prices of corn, crude oil, ethanol, gasoline, soybeans, and sugar, and their open interest. The empirical results demonstrate the presence of these relationships in this nexus, and underscore the importance of ethanol and soybeans in all these relationships. In particular, ethanol and be considered as a catalyst in this nexus because of its significance as a loading factor, a long-run error corrector and a short-run adjuster. Ethanol leads all commodities in the price discovery process in the long run. The negative cross-price open interest effects suggest that there is a money outflow from all commodities in response to increases in open interest positions in the corn futures markets, indicating that active arbitrage activity takes place in those markets. On the other hand, an increase in the soybean open interest contributes to fund inflows in the corn futures market and the other futures markets, leading to more speculative activities in these markets. In connection with open interest, the ethanol market fails because of its thin market. Finally, it is interesting to note that the long-run equilibrium (cointegrating relationship), speeds of adjustment and open interest across markets have strengthened significantly during the 2009-2011 economic recovery period, compared with the full and 2007-2009 Great Recession periods.
|Date of creation:||01 May 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 64 3 369 3123 (Administrator)
Fax: 64 3 364 2635
Web page: http://www.econ.canterbury.ac.nz
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Gohin, Alexandre & Treguer, David, 2010. "On the (De)Stabilization Effects of Biofuels: Relative Contributions of Policy Instruments and Market Forces," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(1), April.
- Kelvin Balcombe & George Rapsomanikis, 2008. "Bayesian Estimation and Selection of Nonlinear Vector Error Correction Models: The Case of the Sugar-Ethanol-Oil Nexus in Brazil," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 658-668.
- Wallace E. Tyner, 2010. "The integration of energy and agricultural markets," Agricultural Economics, International Association of Agricultural Economists, vol. 41(s1), pages 193-201, November.
- Simla Tokgoz & Amani Elobeid & Jacinto Fabiosa & Dermot J. Hayes & Bruce A. Babcock & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart, 2008.
"Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors,"
Review of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 30(4), pages 604-622.
- Tokgoz, Simla & Elobeid, Amani & Fabiosa, Jacinto F. & Hayes, Dermot J. & Babcock, Bruce A. & Yu, Tun-Hsiang & Dong, Fengxia & Hart, Chad E., 2008. "Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors," Staff General Research Papers 12935, Iowa State University, Department of Economics.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Dahlgran, Roger A., 2009. "Inventory and Transformation Hedging Effectiveness in Corn Crushing," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), April.
- Franken, Jason R.V. & Parcell, Joseph L., 2003. "Cash Ethanol Cross-Hedging Opportunities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(03), December.
When requesting a correction, please mention this item's handle: RePEc:cbt:econwp:11/24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Albert Yee)
If references are entirely missing, you can add them using this form.