Food versus fuel: What do prices tell us?

The interconnections of agriculture and energy markets have increased through the rise in the new biofuel agribusinesses and the oil-ethanol-corn linkages. The question is whether these linkages have a causal structure by which oil prices affect commodity prices and through these links, instability is transferred from energy markets to already volatile agricultural markets. In this article, we present empirical results using contemporary time-series analysis and Granger causality supplemented by a directed graph theory modeling approach to identify the links and plausible contemporaneous causal structures among energy and commodity variables. The results show that although there is a strong correlation among oil and commodity prices, the evidence for a causal link from oil to commodity prices is mixed.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S1074070800003667

The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?

This article analyzes recent volatility spillovers in the United States from crude oil using futures prices. Crude oil spillovers to both corn and ethanol markets are somewhat similar in timing and magnitude, but moderately stronger to the ethanol market. The shares of corn and ethanol price variability directly attributed to volatility in the crude oil market are generally between 10%- 20%, but reached nearly 45% during the financial crisis, when world demand for oil changed dramatically. Volatility transmission is also found from the corn to the ethanol market, but not the opposite. The findings provide insights into the extent of volatility linkages among energy and agricultural markets in a period characterized by strong price variability and significant production of corn-based ethanol. Key words: biofuels, corn, crude oil, energy-agricultural co-movements, ethanol, multivariate GARCH, volatility spillovers

Volatility Spillovers in U.S. Crude Oil, Ethanol, and Corn Futures Markets

Linkages between agricultural commodity and energy prices have become more complex with increased ethanol production. The concern is whether the new corn–ethanol links lead to volatilityspillover transmission between food and energy prices. We investigate asymmetric volatility spillovers between oil, corn, and ethanol prices using a BEKK-multivariate-GARCH approach. Additionally, we use daily, weekly, and monthly futures prices to examine whether the use of different-frequency data leads to inconsistent results. The results support the existence of asymmetric volatility transmission between corn and ethanol prices. Furthermore, the volatilityspillover effects are different for the different-frequency prices, and positive and negative price changes generate inconsistent results.

/pdf/asymmetric-price-volatility-transmission-between-u-s-biofuel-48haolncog.pdf

Asymmetric Price Volatility Transmission between U.S. Biofuel, Corn, and Oil Markets

Recent developments in biofuel technologies have resulted in heightened linkages between the petroleum and agricultural sectors. As such, a large price and/or volatility shift experienced in one sector is now more likely to spill-over into the other. In trying to capture the interrelations present in the two markets, we take seriously the importance of properly modeling smooth structural shifts. We incorporate trigonometric functions into a multivariate GARCH model of crude and corn futures prices in order to obtain the empirical volatility response functions and the time-varying correlation coefficient. Although both short-term and long-term futures exhibit shifts in the mean and volatility, volatility shifts do not manifest themselves in the same manner for different maturities. This indicates that the term structure of futures volatility changes over time.

Smooth Volatility Shifts and Spillovers in U.S. Crude Oil and Corn Futures Markets

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Ellene Kebede

Papers

The emergence of an agro-energy sector: is agriculture importing instability from the oil sector?