Making Sense of Commodity Markets: FAPRI-MU Outlook and Policy Implications

Abstract

Declining prices have followed two recent price spikes in 2007/08 and 2010/11 to 2012/13 that brought an era of higher and more volatile commodity prices that is quite different from the previous years of depressed prices. Declining petroleum prices combined with excellent global harvests brought the lowest market prices in many years. Are current policies tuned to these market conditions? We begin with a review of past policy evolution that took place in the European Union (EU) and United States (US), and then look at recent reforms and prospects for policy changes in the context of likely changes in the global market and policy environment over the next decade. Since agricultural policies generally evolve in response to internal and external pressures in a political economy context, we explore how the outlook of commodity markets may influence the directions of policies and the decision making environment for farmers.

Assessing the asymmetric volatility linkages of energy and agricultural commodity futures during low and high volatility regimes

“…5 In this study, we present a brief overview of the literature related to price transmission and volatility in biofuel markets. For an extensive coverage of relevant literature, readers are advised to consult Meyers and Meyer (2008) and Serra and Zilberman (2013).…”

“…Additionally, a change in the price of energy can trigger similar changes in the prices of agricultural commodities by altering input costs and causing shifts in the biofuel market demand. This is due to biofuel prices affecting the price of fossil fuel by influencing demand through the substitution effect (Gilbert, 2010; Han et al, 2020; Meyers & Meyer, 2008). These bidirectional linkages may cause bidirectional price volatility spillovers between energy and agricultural commodity markets.…”

A mixed complementarity model for the US biofuel market with federal policy interventions

“…focused exclusively on D3 RIN markets and only applied their problem to a case study in Iowa. FAPRI studies have included other important RIN markets and have calculated RIN prices from complementary slackness equations that balance supply and demand of a particular biofuel . These complementary slackness conditions are included in a larger framework that does not explicitly maximize profits for all of the various market participants, as the model here does.…”