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Extent and possible causes of intrayear agricultural commodity price volatility

Wheat, corn, rice, soybeans, and cotton experienced higher volatility in the second half of the 2000s. For the sample at hand, the unit root tests only validate a new period of high volatility for wheat and cotton. If in the next couple of years however, corn, rice and soybeans maintain their higher volatility, a new period of high volatility may also be validated statistically. Regarding the factors driving the intrayear volatility GMM estimates show that “commodity market fundamentals” i.e., the stock-to-use ratio and to a lesser extent the degree of internationalization, are the most systematically statistically significant coefficients among commodities. Over time, consecutive low stock-to-use ratios and a thin international market provoke typically high volatility. Speculative activity and liquidity in the agricultural derivative market have a stabilizing effect on the spot price, if any. Finally, “common macro” factors significantly impact volatility, especially the volatility of petrol and of exchange rates; their dispersion importance over the sample is quite sizeable. However, it is difficult to establish a link between, on the one hand, loose monetary policy, business cycle and inflation, and, on the other hand, commodity price volatility, as the sign of the estimated coefficient changes depending on the commodity and the estimated elasticities are quite low.



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