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Spot and future prices of agricultural commodities: fundamentals and speculation

Author

Listed:
  • Lucia BALDI
  • Massimo PERI
  • Daniela VANDONE

Abstract

This paper investigates the long-run relationship between spot and futures prices for corn and soybeans, for the period January 2004 -September 2010. We apply cointegration methodology in the presence of potentially unknown structural breaks in the commodities prices and we then study the causality relationships between spot and futures prices within each specific sub-period identified, with the aim to analyze where changes in spot and futures price originate and how they spread. Empirical estimates highlight the following evidence: i) breaks relate to events that have significantly affected the supply and demand of corn and soybeans for food and energy purposes; ii) sub-periods consequently identified express different dynamics in the causal relationship between spot and futures prices and support the idea that many factors contributed to the 2007-2008 food price increase.

Suggested Citation

  • Lucia BALDI & Massimo PERI & Daniela VANDONE, 2011. "Spot and future prices of agricultural commodities: fundamentals and speculation," Departmental Working Papers 2011-003, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2011-003
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    More about this item

    Keywords

    Commodity; futures markets; price discovery; cointegration; structural breaks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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