Seasonal Variation in the Price Discovery Process of International Wheat

Abstract

This paper uses the Gonzalo-Granger price discovery method to determine whether wheat prices are primarily discovered in the Northern Hemisphere or Southern Hemisphere and whether the price discovery process changes throughout the calendar year. Testing U.S. hard red winter prices against Argentina's wheat price we find that the United States dominates the price discovery process 7 months of the year. Testing U.S Portland soft white prices against Australia's wheat price we find that both countries play a significant role in price discovery but the relative country contribution to price formation varies throughout the year. We also find that the price discovery process changes over time. 1 The United States accounts for approximately 20%-30% of the world's wheat exports, Australia 10%, and Argentina 6%-9%. Yet Argentina and Australia are dominant exporters from the Southern Hemisphere (Do, et al., 2009). These two countries also have a more dominant position in the type of wheat (hard red and soft white, respectively) that they export. U.S. exports have averaged approximately 26-32 million metric tons a year, generating approximately 5-11 billion dollars a year. 2 A Haugh test correlates the errors from the autoregressive model on each price. Haugh showed that standard statistical methods can be used to test error correlations at mixed lags (Haugh, 1972).

Price formation within Egypt's wheat tender market: Implications for Black Sea exporters

“…The exclusion of Argentina, Kazakhstan, Canada and Australia from the GASC tender market is in line with their rather low share in GASC wheat tenders. Further, Canada and Kazakhstan predominantly export higher protein wheat, while the exclusion of the Southern Hemisphere exporters Argentina and Australia likely results from greater geographical distance, as well as seasonal factors (Arnade & Vocke, 2015). We conclude that there exist three cointegrating vectors in the system that includes the GASC, Russia, France and the USA.…”

“…(1999), not explicitly distinguishing between different quality classes, conclude that one single export price leading the global wheat market does not exist. Arnade and Vocke (2015) investigate seasonal variations in wheat price leadership and find that Southern Hemisphere exporters dominate price discovery in the first half of the year, while US prices lead in the second half, after the Northern Hemisphere harvest. In an earlier study, Goodwin (1992) argues that transportation costs between market locations cannot be disregarded if the Law of One Price (LOP) in international wheat markets is investigated.…”

Price Transmission in Cotton Futures Market: Evidence from Three Countries

“…The information flows and price transmission in the agriculture commodities has been a widely researched area, with most studies using cointegration, granger causality, and error correction models (ECM). Among these, the most prominent ones have been (Spriggs et al 1982;Gilmour and Fawcett 1987;Goodwin and Schroeder 1991;Mohanty et al 1995;Bessler et al 2003;Gardebroek et al 2016;Arnade and Vocke 2016;Adammer et al 2016).…”

“…Similarly, Adammer et al (2016) examined price transmission across North American and European agricultural futures prices for canola, wheat, and corn and provide evidence of U.S. markets playing a price leadership role. Further, Arnade and Vocke (2016) study the changes in price discovery U.S./Australia wheat prices and document the dynamic nature of the price discovery process. Similarly, many researchers have explored causal price relationships across U.S. and other emerging markets.…”

Eco-Efficiency in Farm Management for Sustainable Agriculture: a Two-Stage Data Envelopment Analysis in Wheat Production

“…Cereal production is a major activity in the agricultural sector, wherein 45% of today's economically active population is engaged [11][12][13][14]. Wheat (Triticum aestivum L.) is one of the most produced cereals and staple foods (730 million tons in 2015) and is cultivated extensively throughout the world on a larger scale than any other crop [15][16][17][18][19].…”