How Related Are the Prices of Organic and Conventional Corn and Soybean?
Cointegration is tested between organic and conventional corn and soybean markets in several locations throughout the U.S. using a unique data set. Organic prices are found to behave like pure jump processes rather than diffusions. A simple specification for pure jump processes is introduced and used with Monte Carlo methods to compute appropriate critical values for unit-root and cointegration tests. Findings indicate that no long-run relationship exists between organic and conventional prices, implying that price determination for organic corn and soybean is independent from that for the conventional crops. This suggests that organic corn and soybean prices are driven by demand and supply forces idiosyncratic to the organic market. For each crop, cointegrating spatial relationships are found between prices at the main organic markets. However, such relationships are generally weaker than the ones for the corresponding conventional prices, implying that organic markets are more affected by idiosyncratic shocks than conventional markets.
|Date of creation:||31 Oct 2013|
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