The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?
Journal of Agricultural and Applied Economics, 42,3(August 2010):477–485
Ó 2010 Southern Agricultural Economics Association
The Impact of the Oil Sector on Commodity
Prices: Correlation or Causation?
Sayed H. Saghaian
The interconnections of agriculture and energy markets have increased through the rise in the new biofuel agribusinesses and the oil–ethanol–corn linkages. The question is whether these linkages have a causal structure by which oil prices affect commodity prices and through these links, instability is transferred from energy markets to already volatile agricultural markets. In this article, we present empirical results using contemporary time-series analysis and Granger causality supplemented by a directed graph theory modeling approach to identify the links and plausible contemporaneous causal structures among energy and commodity variables. The results show that although there is a strong correlation among oil and commodity prices, the evidence for a causal link from oil to commodity prices is mixed.
Key Words: ethanol prices, crude oil prices, corn prices, soybean prices, wheat prices, causal structure
JEL Classifications: Q11, Q13, Q42, Q48
We recently observed several occurrences of major importance to the agricultural sector simultaneously: the extreme price hikes in the energy sector, the extreme commodity price variability with wider variation and higher averages compared with the past, and the continuing global financial and economic crisis.
Last year’s farm income was the highest recorded in the history of the U.S. Within this context, the purpose of this article is to examine the extent of energy and agricultural sectors’ interlinkages and their interconnections, and the causal structure of the impact of crude oil and ethanol prices on commodity prices.
Sayed H. Saghaian is an associate professor at the
University of Kentucky, Department of Agricultural
Economics, Lexington, KY.
This research was
Ó 2010 Southern Agricultural Economics Association
The Impact of the Oil Sector on Commodity
Prices: Correlation or Causation?
Sayed H. Saghaian
The interconnections of agriculture and energy markets have increased through the rise in the new biofuel agribusinesses and the oil–ethanol–corn linkages. The question is whether these linkages have a causal structure by which oil prices affect commodity prices and through these links, instability is transferred from energy markets to already volatile agricultural markets. In this article, we present empirical results using contemporary time-series analysis and Granger causality supplemented by a directed graph theory modeling approach to identify the links and plausible contemporaneous causal structures among energy and commodity variables. The results show that although there is a strong correlation among oil and commodity prices, the evidence for a causal link from oil to commodity prices is mixed.
Key Words: ethanol prices, crude oil prices, corn prices, soybean prices, wheat prices, causal structure
JEL Classifications: Q11, Q13, Q42, Q48
We recently observed several occurrences of major importance to the agricultural sector simultaneously: the extreme price hikes in the energy sector, the extreme commodity price variability with wider variation and higher averages compared with the past, and the continuing global financial and economic crisis.
Last year’s farm income was the highest recorded in the history of the U.S. Within this context, the purpose of this article is to examine the extent of energy and agricultural sectors’ interlinkages and their interconnections, and the causal structure of the impact of crude oil and ethanol prices on commodity prices.
Sayed H. Saghaian is an associate professor at the
University of Kentucky, Department of Agricultural
Economics, Lexington, KY.
This research was
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