Understanding Recent Food Price Patterns: A Time-Series Approach

Abstract

The guiding theme of this thesis is the empirical analysis of recent food price behavior. It is composed of three applied studies that address the impacts of energy prices on both food price levels and volatility, as well as the impact of public information release on futures markets of major agricultural commodities. Non-structural time series econometric techniques are applied for such purpose. In the first chapter, the impact of the Spanish biodiesel industry on agricultural feedstock prices is investigated. Both price level and volatility interactions are evaluated. Three relevant prices are considered: the international crude oil price, the Spanish biodiesel blend price and the Spanish sunflower oil price. Weekly Prices are observed from November 2006 to October 2010, yielding a total of 205 observations. Blended biodiesel, sunflower and crude oil prices are found to be interrelated in the long-run. This parity is preserved by the biodiesel industry in order to be in equilibrium. The impact of biodiesel on sunflower oil price levels is found to be very modest, which is reasonable given the small size of the Spanish biodiesel industry. Volatility spillovers between sunflower and biodiesel markets are found to be significant. Evidence of asymmetries in price volatility patterns is also found, with price declines causing more price instability than price increases. Asymmetries can be triggered by the availability of alternative feedstocks in the market, as well as by the unwillingness of biodiesel producers to increase food prices when feedstocks become more expensive.

In the second chapter, the impact of the EU biodiesel market on agricultural feedstock prices is analyzed. The study comprises the period between 06/11/2008 to 14/06/2012, and is based on 189 weekly prices. Cointegration analysis suggests that the three prices have a long-run equilibrium relationship that is preserved by the pure biodiesel price. Biodiesel prices are not found to have an effect on rapeseed oil prices. Volatility of pure biodiesel price is affected by its own past volatility and past pure biodiesel and rapeseed market shocks. Also, evidence is found of asymmetries in price volatility, with negative market shocks having a greater impact than positive ones. While pure biodiesel prices cannot affect rapeseed oil price-levels, they can bring instability to these prices. Inventory building and the euro-dollar exchange rate are found to be relevant risk management instruments that can be used to mitigate the biodiesel and rapeseed oil price volatilities.

In the third chapter, the impact of public information in the form of USDA-NASS crop production reports on daily corn and soybeans futures prices is evaluated. The study period is between 1970 to 2004, with a total of 700 observations. Results show that USDA-NASS crop production reports significantly affect futures price levels. Report releases at the beginning and at the end of the harvest season are usually the ones exerting a stronger impact. Report releases are not however found to have an effect on price volatility, which suggests gradual price-level changes as a response to published information. Cross-market effects of news are also found to be significant.