Abstract
The objective of this article is to provide an analysis of the relationship existing between cereal prices and several variables (population, income, exports, the exchange rate, and speculation), by using a linear regression analysis. Specific emphasis is placed on the speculative dimension. Our results show that speculation has played a crucial role during the period June 2001–December 2009. Exports, in some ways connected to the former variable, occupy second place, in terms of significance. However, their impact on cereal prices is less relevant than that of biofuel production. Population growth acts in the opposite direction due to the change in diets, implying that population increases would tend to affect primarily other agricultural markets. Excessive volatility in food prices is a dramatic question. From a demand point of view, consumers in developing countries and vulnerable income groups in other countries (farmers) have to be protected. More than one policy has to be introduced.
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Notes
International trade in genetically modified corn is complicated by trade regulations within the WTO, namely, the application of Sanitary and Phyto-Sanitary Measures and Technical Barriers to Trade (TBTs).
In our analysis we consider milled rice.
A ‘long position’ consists in the buying of a commodity with the expectation that the asset will rise in value.
A short position involves the sale of a borrowed commodity with the expectation that the asset will fall in value.
That said, for every new buyer of a futures contract, there must be a new seller, but the seller is likely to be looking to hold a position for a few hours or days, hoping to benefit from the ups and downs represented by price movements.
It includes corn, soybeans, Chicago wheat (soft, red winter wheat) and Kansas Wheat (hard, red winter wheat or red wheat) prices in variable proportions. Note that the utilisation of the logarithmic scale allows to linearise their behaviour and to assess them in elasticity terms.
The long-run equation (Table 1) is not a spurious regression. All the variables that enter the equation are integrated of order one. Nevertheless, the ADF test on the residuals of this equation refuses the presence of unit roots, so that all the variables in the model are cointegrated, that is, the regression coefficients are meaningful and can be interpreted as long-run coefficients.
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Acknowledgments
The authors would like to acknowledge the precious help provided by Elisa Guerra and Andrea Lucchetta in the sourcing and elaboration of statistical data and to Domenico Sartore for his valuable comments on an earlier draft.
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Andreosso-O’Callaghan, B., Zolin, M.B. Long-term Cereal Price Changes: How Important is the Speculative Element?. Transit Stud Rev 17, 624–637 (2010). https://doi.org/10.1007/s11300-010-0178-7
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DOI: https://doi.org/10.1007/s11300-010-0178-7