Modeling Nonlinearities in the U.S. Soybean‐to‐Corn Price Ratio: A Smooth Transition Autoregression Approach

Abstract

The soybean-to-corn price ratio has long been considered one of the triggers that farmers use in the decision to produce corn or soybeans, but little has been done to analyze its dynamics. Recently, the soybean-to-corn price ratio options were introduced on the Chicago Board of Trade, providing the market participants with an opportunity to trade the relative prices of the crops. In this study, the author investigates potentially nonlinear dynamics of the soybean-to-corn price ratio by applying the smooth transition autoregression (STAR) modeling framework to the soybean-to-corn price ratio, derived from monthly futures prices of corn and soybeans. The estimated model demonstrates nonlinear dynamics, resulting in asymmetries in the adjustment to the long-run equilibrium of the soybean-to-corn price ratio. The findings of this research provide insightful implications to crop producers, input suppliers, and other market participants. [EconLit Citations: C220; E370; Q110]. C 2011 Wiley Periodicals, Inc.

Nonlinear relationship between the weather phenomenon El niño and Colombian food prices

“…2017), commodity prices (Chimeli et al . 2008; Ubilava 2012a; Ubilava 2012b; Castro Campos 2019), impact human health (Grove and Chappell 2000; Andalón et al . 2016) and explain social‐economic conflicts (Davis 2002; Hsiang et al .…”

El Niño southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models

“…There are several reasons for this. First, it is due to the very nature of the production–distribution cycle: while agricultural crops are usually harvested on an annual basis, given the demand shock they can be disposed promptly, thus suggesting possibilities for asymmetric price dynamics (Holt and Craig ; Ubilava ). Second, in the system of closely related (substitute) products, an additional source of nonlinear behaviour arises due to pretense of the so‐called transactions cost band: when prices are in disequilibrium, a price shock to one or several commodities will typically result in prompt and adequate adjustments by economic agents, resulting in a closer co‐movement of prices; while when prices are such that they are within the transactions cost band, economic agents may be reluctant to react to small variations in one or more of the prices, thereby potentially mitigating co‐movement due to the substitution effects on the related commodities (Balke and Fomby ).…”

Entendiendo, Modelando y Pronosticando el Efecto de “El Niño” Sobre los Precios de los Alimentos: El Caso Colombiano

“…Recientemente, (Parra-Amado, Abril-Salcedo, & Melo-Velandia, 2016) y (Salcedo, Melo-Velandia, & Parra-Amado, 2019) estimaron el efecto del ENSO en la inflación de los alimentos en Colombia usando un modelo STAR junto con funciones de impulso-respuesta generalizadas. (Salcedo et al, 2019) se basa ampliamente en (Parra-Amado et al, 2016), quienes a su vez, se basan extensivamente en (Ubilava, 2012a) y (Ubilava, 2012b). El principal hallazgo de estos trabajos es la existencia de no-linealidad en la relación entre estas dos variables.…”

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