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The Role of Storage in Commodity Markets: Indirect Inference Based on Grains Data

Author

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  • Nicolas Legrand

    (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

  • Christophe Gouel

    (AgroParisTech, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

Abstract

Understanding the drivers of commodity prices dynamics is crucial. Unfortunately the central economic model for representing commodity prices, the competitive storage model, is not yet empirically validated. In this work, we develop a rich storage model with four demand and supply shocks, elastic supply, and longrun trends and estimate it structurally on a caloric aggregate of the four most important grains. Our estimated model is consistent with most of the moments in the data, validating the empirical relevance of the storage model. The estimated model shows that speculative storage while crucial cannot explain alone the persistence of grain price. It explains 42% of the price autocorrelation, the rest being accounted for by the price trend, the persistence of demand shocks, and the presence of news shocks about production.

Suggested Citation

  • Nicolas Legrand & Christophe Gouel, 2022. "The Role of Storage in Commodity Markets: Indirect Inference Based on Grains Data," Working Papers hal-03809825, HAL.
    • Handle: RePEc:hal:wpaper:hal-03809825
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03809825v1
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    Cited by:

    1. Nicolas Legrand, 2023. "War in Ukraine: The rational “wait‐and‐see” mode of global food markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 626-644, June.
    2. Christophe Gouel & Nicolas Legrand, 2025. "The role of storage in commodity markets: Indirect inference based on grain data," Quantitative Economics, Econometric Society, vol. 16(2), pages 705-747, May.
    3. Gouel, Christophe & Ma, Qingyin & Stachurski, John, 2024. "Interest rate dynamics and commodity prices," Journal of Economic Theory, Elsevier, vol. 222(C).

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    Keywords

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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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