Do food and oil prices co-move?

• Published in: Energy policy Vol. 49; pp. 456 - 467
• Main Author: Reboredo, Juan C.
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.10.2012; Elsevier; Elsevier Science Ltd
• Subjects: Agricultural commodities; Agricultural commodity prices; Agricultural economics; Agricultural management; Agronomy. Soil science and plant productions; Applied sciences; Biological and medical sciences; Co-movement; Commodity prices; Corn; Crude oil; Crude oil prices; Economic data; Energy; Energy economics; Energy policy; Exact sciences and technology; Food; Food prices; Foods; Fossil fuels and derived products; Fundamental and applied biological sciences. Psychology; General, economic and professional studies; Generalities. Biometrics, experimentation. Remote sensing; Hedging; issues and policy; Markets; Methodology. Modelling; Neutrality; Oil; Oil price; Oil prices; oils; petroleum; Petroleum industry; Prices; Risk management; Sampling; Soybeans; Strategic planning; Strategy; Studies; Triticum aestivum; Wheat; Oil prices; Co-movement; Agricultural commodity prices; Time series; Corn; Econometric model; Autoregressive model; Foodstuff; Soybean; Modeling; Petroleum; Price; Covariation; Cereal; Wheat
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2012.06.035

This paper studies co-movements between world oil prices and global prices for corn, soybean and wheat using copulas. Several copula models with different conditional dependence structures and time-varying dependence parameters were considered. Empirical results for weekly data from January 1998 to April 2011 showed weak oil-food dependence and no extreme market dependence between oil and food prices. These results support the neutrality of agricultural commodity markets to the effects of changes in oil prices and non-contagion between the crude oil and agricultural markets. However, dependence increased significantly in the last three years of the sampling period, even though upper tail dependence remained insignificant, indicating that food price spikes are not caused by positive extreme oil price changes. These results have implications for policy design, risk management and hedging strategies. ► We study co-movement between food and oil markets through copulas. ► Food prices are neutral to the effects of changes in oil prices. ► Oil price spikes had no causal effect on agricultural price spikes. ► Oil–corn and oil–soybean dependence increased in recent years. ► Food subsidy policies and price controls are unnecessary to avoid extreme oil prices.