Sugar Prices vs. Financial Market Uncertainty in the Time of Crisis: Does COVID-19 Induce Structural Changes in the Relationship?

Abstract

Securitization of the agricultural commodity market has accelerated since the beginning of the 21st century, particularly in the times of financial market uncertainty and crisis. Sugar belongs to the group of important agricultural commodities. The global financial crisis and the COVID-19 pandemic has caused a substantial increase in the stock market volatility. Moreover, the novel coronavirus hit both the sugar market’s supply and demand side, resulting in sugar stock changes. The paper aims to assess potential structural changes in the relationship between sugar prices and the financial market uncertainty in a crisis time. In more detail, using sequential Bai–Perron tests for structural breaks, we check whether the global financial crisis and the COVID-19 pandemic have induced structural breaks in that relationship. Sugar prices are represented by the S&P GSCI Sugar Index, while the S&P 500 option-implied volatility index (VIX) is used to show stock market uncertainty. To investigate the changes in the relationship between sugar prices and stock market uncertainty, a regression model with a sequential Bai–Perron test for structural breaks is applied for the daily data from 2000–2020. We reveal the existence of two structural breaks in the analysed relationship. The first breakpoint was linked to the global financial crisis outbreak, and the second occurred in December 2011. Surprisingly, the COVID-19 pandemic has not induced the statistically significant structural change. Based on the regression model with Bai–Perron structural changes, we show that from 2000 until the beginning of the global financial crisis, the relationship between the sugar prices and the financial market uncertainty was insignificant. The global financial crisis led to a structural change in the relationship. Since August 2008, we observe a significant and negative relationship between the S&P GSCI Sugar Index and the S&P 500 option-implied volatility index (VIX). Sensitivity analysis conducted for the different financial market uncertainty measures, i.e., the S&P 500 Realized Volatility Index confirms our findings.

Do International Agricultural Commodity Prices Have an Effect on the Stock Market Index? A Comparative Analysis Between Poland and Turkey

“…This may be due to the fact that Poland's economic ecosystem is more industrialised than that of Turkey. The results obtained from the study are also in line with the studies of (Kotyza et al, 2021;Nguyen et al, 2020;Iyke & Ho, 2021;Boako et al, 2020;Bohl & Sulewski, 2019;Misecka et al, 2019;Chen, 2016;Girardi, 2015).…”

“…According to the main conclusion, it cannot be said that agricultural commodity prices do not affect the stock market index. These findings are similar to the previous studies (Kotyza et al, 2021;Nguyen et al, 2020;Iyke & Ho, 2021;Boako et al, 2020;Bohl & Sulewski, 2019;Misecka et al, 2019;Chen, 2016;Girardi, 2015). In addition, the effects of agricultural commodities on the BIST100 index are more than the WIG20 index.…”

Safe-haven properties of soft commodities during times of Covid-19

“…A comparison of our results in Panel-A and Panel-B of Fig. 7 shows that sugar may not act as safe-haven asset for short-term investors in both spot and futures market but acts as safe-haven asset for the long-term investors in both spot and futures markets as during the second half of 2020 the institutional fund managers became optimistic and started to rebuild the long-term positions in sugar futures ( Kotyza et al, 2021 ).…”

Effect of Production Costs on the Price per Ton of Sugarcane: The Case of Brazil

“…One of the factors attributed to this is the high level of the world sugar stock and also the price of hydrated ethanol in the domestic market (Novacana, 2018;Oliveira & Andrade, 2020). In this sense, other countries such as Thailand have been growing significative way in sugar exportation, so there is increasing competition in the world market (Kotyza et al, 2021). These indicators, in the view of Demczuk and Padula (2017), contribute to the indebtedness of this sector and have implications for production costs.…”