A Cointegration Analysis of Oil and Agricultural Prices

James Wilkinson and Atanu Ghoshray

Review of Market Integration, 2013, vol. 5, issue 3, 249-270

Abstract: The rise of biofuels as a mainstream fuel source coupled with large price fluctuations in both crude oil and agricultural commodity markets in recent years has led to several investigations into the effect crude oil prices exert over agricultural commodity prices. This study analyses crude oil, corn, soybean and sugar prices from 1980 to 2012 and applies time series econometric methods to determine the equilibrium relationship and causality among the commodity prices. The study then examines the adjustment dynamics of the prices after an exogenous shock to oil prices. The results show that oil only plays a small role in the long-run equilibrium relationship among the grain commodities; however, there is strong evidence that the oil price shocks affect agricultural commodity prices in the short to medium term. An exogenous shock to oil prices is found to affect sugar and corn prices, the two largest inputs into bio-ethanol globally.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:sae:revmar:v:5:y:2013:i:3:p:249-270

DOI: 10.1177/0974929214538359

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