Oil Price Pass through to Agricultural Commodities^†

Abstract

Energy represents an important share of production costs for many agricultural commodities. Previous studies have found mixed evidence of a pass‐through relationship between oil prices and agricultural commodity prices, a relationship that has the potential to disrupt farm‐level decision making. We propose that these mixed findings are in part due to heterogeneity in the pass‐through relationship across time horizons. We use a new wavelet‐based regression approach to explore horizon‐based heterogeneity in the relationship between oil and agricultural commodity prices. We find strong evidence of heterogeneity across time horizons and commodities. We develop a stylized model of agricultural production and show that agricultural contracts can generate price stickiness that leads to heterogeneity in input price pass through over different horizons. We also find evidence that recent technological shifts have led to a structural change in this horizon‐based heterogeneity.

The role of temperature for seasonal market integration: a case study of poultry in Iran*

“…Thus, wholesaler market power is lower during warm periods and price adjustment is more symmetric. Our findings are in line with Gilbert et al, (2017) and Lundberg et al, (2020) who report that weather-induced seasonality is an important factor, especially for perishable products. In contrast, the interaction terms of temperature are insignificant in retail-wholesale equations.…”

“…In the long-run, transaction costs due to the additional losses and transportation contribute to price and margin changes. As Lundberg et al, (2020) find, the effects of seasonality on the price transmission process may be driven by changes in transportation or transaction costs over seasons. However, it remains unclear to what extent the extra transaction costs add to the price dynamics.…”

“…., it is quite possible to observe oligopoly power during different months of the year'. Similarly, Lundberg et al, (2020) present empirical evidence of seasonal changes in the price transmission rates of several agricultural commodities including the US broiler market.…”

“…For example, due to the perishability of the product traders may delay the transmission of price increases to prevent the risk of spoilage during warm seasons (Kim & Ward, 2013). In recent work, Lundberg et al, (2020) analyse seasonal patterns in the price transmission process of the US broiler market applying a frequency-domain framework. The authors suggest that seasonality in the price transmission process is significantly driven by changes in transportation costs.…”

Agricultural Grain Markets in the COVID-19 Crisis, Insights From a GVARModel

“…Finally, in the third block, we assume that the international energy market is susceptible to influence all country models and the endogenous variables. Energy represents animportant share of production costs, more than 30% of total expenditures for many cereals(Beckman et al, 2013), and can affect agricultural prices, with important implications for both consumers and farmers (seeMyers et al, 2014;Gutierrez et al, 2015;Lundberg et al, 2020 among others). Hence, we include oil prices in all country models.…”