Booms in Agricultural & Non-Agricultural Prices: Who Is Responsible?

Abstract

This paper investigates the cross-market price linkages in actively traded, major agricultural and energy commodities, impacted by three global episodes over the 1971-2018 time frame. As episodes, we identify the rapid increase of prices during the 1970’s, the commodity depression of the 1990’s, the credit crunch and sovereign debt crisis in the 2000’s. We find that during the rapid price increase in 1970’s, all the major agricultural commodity are influenced by a series of events, including the Soviet Union’s unexpected purchase of a large amount of grain in the global markets. During the commodity depression, a negative relationship is shown by all the agricultural commodities. The credit crunch and sovereign debt shows a positive impact for only wheat whereas oats show a negative relationship. We also investigate these three episodes on non-agricultural commodity sectors (wood and animal, precious metal and energy sector). The paper demonstrates the increase in the energy prices supporting the cross-market linkages between the stock and crude oil markets as a result of the financialization of commodities.