The determinants of the recent food price surges â€“ A basic supply and demand model
This paper analyzes the factors behind the recent trends in food commodity prices, especially the question to what extent the price hikes are caused by fundamentals. Some of the main determinants have been identified and classified in ongoing studies. Based on this categorization, a basic supply and demand model for food commodity markets is developed in this paper that includes two arguments. One is that the growth rate of notional food demand differs from the growth rate of food supply. Consequently the prices have to adjust in order to restore an equilibrium situation in the food market. The second argument is the change in supply and demand elasticities causing swings in food prices. The model is applied for the prices of wheat and corn from 1990 to 2011 and compared with the actual spot prices. The results show that the model can replicate the prices of both food commodities up to 2006/2007 but a significant divergence appears thereafter. Financialization is identified as one reason for this development, but the demand from China and India is neglected as a reason behind price increases in many food commodities.
|Date of creation:||Jul 2012|
|Publication status:||Published in Berlin Working Papers on Money, Finance, Trade and Development, July 2012|
|Contact details of provider:|| Web page: http://finance-and-trade.htw-berlin.de|
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.:
- Pindyck, Robert S., 1990.
"Inventories and the short-run dynamics of commodity prices,"
3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
- Robert S. Pindyck, 1990. "Inventories and the Short-Run Dynamics of Commodity Prices," NBER Working Papers 3295, National Bureau of Economic Research, Inc.
- Fattouh, Bassam & Kilian, Lutz & Mahadeva, Lavan, 2012.
"The Role of Speculation in Oil Markets: What Have We Learned So Far?,"
CEPR Discussion Papers
8916, C.E.P.R. Discussion Papers.
- Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
- Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2009.
"A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence,"
2009 Conference, April 20-21, 2009, St. Louis, Missouri
53050, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Dwight R. Sanders & Scott H. Irwin, 2010. "A speculative bubble in commodity futures prices? Cross-sectional evidence," Agricultural Economics, International Association of Agricultural Economists, vol. 41(1), pages 25-32, 01.
- Trostle, Ronald, 2008. "Factors Contributing to Recent Increases in Food Commodity Prices (PowerPoint)," Seminars 43902, USDA Economists Group.
- Jörg Mayer, 2009. "The Growing Interdependence Between Financial And Commodity Markets," UNCTAD Discussion Papers 195, United Nations Conference on Trade and Development.
- Bicchetti, David & Maystre, Nicolas, 2012.
"The synchronized and long-lasting structural change on commodity markets: evidence from high frequency data,"
37486, University Library of Munich, Germany.
- Bicchetti, David & Maystre, Nicolas Maystre, 2013. "The synchronized and long-lasting structural change on commodity markets: Evidence from high frequency data," Algorithmic Finance, IOS Press, vol. 2(3-4), pages 233-239.
- David Bicchetti & Nicolas Maystre, 2012. "The Synchronized And Long-Lasting Structural Change On Commodity Markets: Evidence From High Frequency Data," UNCTAD Discussion Papers 208, United Nations Conference on Trade and Development.
- Hernandez, Manuel & Torero, Maximo, 2010. "Examining the dynamic relationship between spot and future prices of agricultural commodities," IFPRI discussion papers 988, International Food Policy Research Institute (IFPRI).
When requesting a correction, please mention this item's handle: RePEc:mtf:wpaper:1206. 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: (Prof. Dr. Sebastian Dullien)
If references are entirely missing, you can add them using this form.