Food Price Bubbles and Government Intervention: Is China Different?

Abstract

The last decade has witnessed different price trajectories in the international and Chinese agricultural commodity markets. This paper compares and contrasts these dynamic patterns between markets from the perspective of price bubbles. A newly developed right-tailed unit root testing procedure is applied to detect price bubbles in the Chicago Board of Trade (CBOT) and Chinese agricultural futures market during the period 2005-14. Results show that Chinese markets experienced less prominent speculative bubbles than the international markets for its high self-sufficiency commodities (wheat and corn), but not for low self-sufficiency commodities (soybean). The difference in price behavior is attributed to differences in market intelligence, and to Chinese agricultural policies related to trade as well as domestic government policies. Besides, it discusses challenges to the sustainability of the stable price trajectory in Chinese markets.Au cours de la dernière décennie, les prix des produits agricoles sur les marchés chinois et international ont suivi des trajectoires variées. Dans le présent article, nous comparons les divers marchés sur le plan des bulles de prix des produits agricoles. Nous avons utilisé un nouveau test de racine unitaire qui exploite la queue de droite de la distribution de la statistique pour déceler les bulles de prix des produits agricoles sur le Chicago Board of Trade (CBOT) et sur les marchésà terme chinois au cours de la période 2005-14. Les résultats de notreétude montrent que les marchés chinois ont connu des bulles spéculatives moins prononcées que les marchés internationaux dans le cas des produits agricoles pour lesquels l'autosuffisance de la Chine est trèsélevée (le blé et le maïs), par rapport aux produits pour lesquels l'autosuffisance est faible (le soja). La différence sur le plan du comportement des prix est attribuable aux différences sur le plan de l'information commerciale ainsi qu'aux politiques agricoles chinoises en matière de commerce età la politique intérieure du pays. Nous avonségalement examiné les défis par rapportà la durabilité d'une trajectoire de prix stables sur les marchés chinois.

Price bubbles and market integration in global sugar futures markets

“…Price bubbles arise in unstable markets and are associated with rapid price increases and unstable dynamics. As discussed in rational price bubble literature, we can use continuous unusual price movements to evaluate whether a bubble component drives markets (Li, Li, & Chavas, 2016).…”

“…They find that speculation has little or a negative effect on price explosiveness, and that positive bubbles are more likely to occur in the presence of low inventories, strong exports, a weak U.S. dollar, and booming economic growth, whereas negative bubbles are more likely to occur with large inventories, weak exports, and stagnant economic growth. Li et al (2016) detect price bubbles in the Chicago Board of Trade (CBOT) and Chinese agricultural futures markets (wheat, corn, and soybean) from 2005 to 2014. They attribute the difference in price behavior to differences in market intelligence and China's agricultural trade policies and domestic government policies.…”

“…They attribute the difference in price behavior to differences in market intelligence and China's agricultural trade policies and domestic government policies. Li et al (2016) also discuss challenges to the sustainability of the stable price trajectory in China's markets.…”

“…More importantly, the GSADF test not only detects the presence of bubbles but also date-stamps the bubble episodes, which provides more information about the price bubbles. After that, plenty of literature concentrates on price bubbles with the SADF and the GSADF (Areal et al, 2013;Etienne et al, 2014;Etienne, Irwin, & Garcia, 2015;Li et al, 2016).…”

“…Following previous literature (Etienne et al, 2015;Li et al, 2016), we use the respective daily close price from 6 January 2006 to 14 September 2017 as the price series for our analysis based on both data compatibility and availability 4,5 Thus, our data set starts when China's sugar futures started public trading, which is convenient for making a comparison of the price bubbles. The sugar futures come from ZCE, NYBOT, and LIFFE, which are the most dominant participants in the global sugar futures markets.…”