Fertilizer markets and its interplay with commodity and food prices
This study analyses the drivers behind the recent price evolution of fertilizers and their interplay with energy and food commodity market prices. First, evidence of speculative behaviour on fertilizer markets is found. However, speculation on derivative markets can hardly be considered as the cause. The recent rapid expansion of this new derivative market might be due to the growing volatility of international fertilizer prices, especially urea, and it is probable that most of the fertilizer derivative products may be used as hedging tools and not as speculative ones. Indeed, the peak in fertilizer prices first occurred on the physical market due to the uncertainty of the grain and fertilizer markets (high volatility). Second, the prices of food commodities have influenced the fertilizer market and not vice versa. The results show that there is substantial co-movement between fertilizers' and food prices, but that the food prices are among the causes of the fertilizer price movements. In addition, higher food prices induced a higher demand for fertilizers, again boosting prices to higher levels. Third, the energy sector triggered the increase in fertilizer prices through the input cost channel. Energy represents a key input in the production of fertilizers. Rising oil and natural gas prices provoked a spark for the nitrogen nutrients whose production depends heavily on energy inputs for production and transport. The same occurred to phosphate and potash, where energy input is less important in their respective production cost structures. Fourth, given the oligopolistic fertilizer supply chain and the inelasticity of the supply of fertilizers (there is a 5 to 10 year delay before new production plants can be put into the supply chain), this created an upward adjustment of the expectations in the fertilizer market causing an upward spiral effect of the price. This eventually might have provoked a price peak in 2007 due to the uncertainty surrounding the low levels of global fertilizer stocks (nitrogen and phosphate). Over the previous 15 years, the excess nitrogen supply has nearly vanished while phosphate and potash have remained at marginal levels, meaning that no buffer could protect the market when an adverse shock occurred in 2007. Fifth, the volatility of energy, food and fertilizer prices move closely together in an environment of rising energy prices. In the opposite scenario, food and fertilizer volatility do not move together with the volatility of energy prices in an environment of decreasing energy prices. Consistent with other studies, the volatility of fertilizer, energy and food prices was lower during the commodity price peak of 2007/08 than during the 1973/74 oil price shock.
|Date of creation:||Jul 2012|
|Contact details of provider:|| Postal: C/ Inca Garcilaso, s/n 41092 Seville|
Phone: +34 954 48 8318
Fax: +34 954 48 8300
Web page: https://ec.europa.eu/jrc/en
More information through EDIRC
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.:
- John Cuddington & Zhongmin Wang, 2006. "Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data," Journal of Regulatory Economics, Springer, vol. 29(2), pages 195-210, 03.
- Day, Richard H. & Huang, Weihong, 1990.
"Bulls, bears and market sheep,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 14(3), pages 299-329, December.
- Day, R. & Huang, W., 1988. "Bulls, Bears And Market Sheep," Papers m8822, Southern California - Department of Economics.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
- Emanuel Derman, 2002. "The perception of time, risk and return during periods of speculation," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 282-296.
- Apostolos Serletis & John Herbert, 2007. "The Message in North American Energy Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 13, pages 156-171 World Scientific Publishing Co. Pte. Ltd..
- Serletis, Apostolos & Herbert, John, 1999. "The message in North American energy prices," Energy Economics, Elsevier, vol. 21(5), pages 471-483, October.
- Ciaian, Pavel & Kancs, d'Artis, 2011. "Interdependencies in the energy-bioenergy-food price systems: A cointegration analysis," Resource and Energy Economics, Elsevier, vol. 33(1), pages 326-348, January.
- Pavel Ciaian & d'Artis Kancs, 2009. "Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis," EERI Research Paper Series EERI_RP_2009_06, Economics and Econometrics Research Institute (EERI), Brussels.
- Ciaian, Pavel & Kancs, d'Artis, 2010. "Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61009, Agricultural and Applied Economics Association.
- Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
- Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
- Tom Doan, "undated". "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Tom Doan, "undated". "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2011. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics, Elsevier, vol. 33(3), pages 497-503, May.
- Xiaodong Du & Cindy L. Yu & Dermot J. Hayes, 2009. "Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis," Center for Agricultural and Rural Development (CARD) Publications 09-wp491, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Xiaodong Du & Cindy L. Yu & Dermot J. Hayes, 2009. "Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis," Food and Agricultural Policy Research Institute (FAPRI) Publications 09-wp491, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
- Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2009. "Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49276, Agricultural and Applied Economics Association.
- Busetti, Fabio & Taylor, A. M. Robert, 2004. "Tests of stationarity against a change in persistence," Journal of Econometrics, Elsevier, vol. 123(1), pages 33-66, November.
- Huang, Wen-Yuan, 2007. "Influence of the Natural Gas Price on the Ammonia Price, 2000 to 2006," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34929, Southern Agricultural Economics Association.
- Frank Asche, Petter Osmundsen, Ragnar Tveteras, 2001. "Market integration for natural gas in Europe," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 16(4), pages 300-312.
- Emanuel Derman, 2002. "The Perception of Time, Risk and Return During Periods of Speculation," Papers cond-mat/0201345, arXiv.org.
- Saravia-Matus, Silvia L. & Gomez y Paloma, Sergio & Mary, Sebastien, 2012. "Economics of Food Security: Selected Issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), issue 1, April.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
- Asche, Frank & Gjolberg, Ole & Volker, Teresa, 2003. "Price relationships in the petroleum market: an analysis of crude oil and refined product prices," Energy Economics, Elsevier, vol. 25(3), pages 289-301, May.
- Sornette, Didier & Woodard, Ryan & Zhou, Wei-Xing, 2009. "The 2006–2008 oil bubble: Evidence of speculation, and prediction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1571-1576. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ipt:iptwpa:jrc73043. 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: (Publication Officer)
If references are entirely missing, you can add them using this form.