Determinants of Agricultural Commodity Price Fluctuations: Evidence from Time Series Data
DOI:
https://doi.org/10.5281/zenodo.18115853Keywords:
Agricultural price volatility, Cointegration, GARCH, Impulse response, Macro financial factors, Time series analysis, Vector autoregressionAbstract
Price instability in agricultural markets undermines farm incomes, threatens food security and creates macroeconomic uncertainty. This article investigates the drivers of monthly agricultural commodity price fluctuations from January 2000 to September 2024 using an extensive time series data set compiled from the International Monetary Fund’s primary commodity price database and complementary series. The study develops a conceptual framework linking prices to supply and demand fundamentals, expectations, macro financial conditions and institutional factors. A rich body of literature is reviewed to situate the work within recent debates on food price volatility. Empirically, the paper employs unit root and cointegration tests, vector error correction and vector autoregressive models, Granger causality, impulse response analysis, forecast error variance decomposition and an ARCH–GARCH volatility model. Results show that major food and input prices are non-stationary but cointegrated; shocks in oil and industrial inputs spill over to food and fertiliser indices; and a GARCH (1,1) model highlights persistent volatility clustering in food prices. Structural drivers—including growing population and income, biofuel demand, energy prices, climate shocks, low stocks, exchange rate swings and financial speculation—are discussed in light of empirical findings. Policy recommendations emphasise improving market transparency, strengthening grain reserves, investing in climate-resilient agriculture, enhancing risk management tools and fostering multilateral coordination to mitigate excessive volatility. The study contributes to the econometric evidence base on food price dynamics and offers actionable insights for governments, development agencies and market participants.
References
Algieri, B. (2013). A roller coaster ride: An empirical investigation of the main determinants of wheat price. Agricultural Economics, 44(4), 457–470. https://doi.org/10.22004/ag.econ.145556
Anderson, K., & Nelgen, S. (2012). Trade barrier volatility and agricultural price stabilization. World Development, 40(1), 36–48. https://doi.org/10.1016/j.worlddev.2011.05.018
Balcombe, K. (2009). The nature and determinants of volatility in agricultural prices: an empirical study from 1962-2008. The evolving structure of world agricultural trade. FAO, Rome, 109-136.
Baldi, L., Peri, M., & Vandone, D. (2016). Financial markets and agricultural commodities: Volatility impulse response analysis. In Proceedings of the 151st EAAE Seminar (pp. 104–109). https://doi.org/10.22004/AG.ECON.244461
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of econometrics, 31(3), 307-327. https://doi.org/10.1016/0304-4076(86)90063-1
Dorward, A. (2012). The short-and medium-term impacts of rises in staple food prices. Food security, 4(4), 633-645. https://doi.org/10.1007/s12571-012-0210-3
Gilbert, C. L. (2010). Speculative influences on commodity prices. UNCTAD Discussion Paper 197.
Hayo, B., Kutan, A., & Neuenkirch, M. (2012). Financial market response to monetary policy communications. Economics Letters, 117(3), 646–649. https://doi.org/10.1016/j.econlet.2012.05.018
Headey, D. (2011). Rethinking the global food crisis: The role of trade shocks. Food Policy, 36(2), 136-146. https://doi.org/10.1016/j.foodpol.2010.10.003
Heumesser, C., & Staritz, C. (2013). Financialisation and the microstructure of commodity markets: A qualitative investigation of trading strategies of financial investors and commercial traders (No. 44). ÖFSE Working Paper.
Hung, N. T. (2021). Oil prices and agricultural commodity markets: Evidence from pre and during COVID-19 outbreak. Resources policy, 73, 102236. https://doi.org/10.1016/j.resourpol.2021.102236
International Monetary Fund (2014). Drivers of food price volatility. IMF Working Paper 14/195.
Johnson, T. (2011). Food price volatility and insecurity. Council on Foreign Relations.
Kalkuhl, M., Von Braun, J., & Torero, M. (2016). Volatile and extreme food prices, food security, and policy: an overview. Food price volatility and its implications for food security and policy, 3-31.
Karali, B., & Power, G. J. (2013). Short‐and long‐run determinants of commodity price volatility. American Journal of Agricultural Economics, 95(3), 724-738. https://doi.org/10.1093/ajae/aas122
Karali, B., & Power, G. J. (2013). Do common factors affect commodity returns? A dynamic factor model for non fuel and fuel commodities. Journal of Futures Markets, 33(6), 548–580.
Kornher, L., & Kalkuhl, M. (2013). Impact of storage and policy on domestic price volatility in developing countries. Food Policy, 43, 32–45.
Larionova, M. (2023). G20 at the critical juncture, Indonesia’s 2022 presidency: Internal and external shocks, risks of power rebalancing and eventual demise, causes of resilience and re-equilibrium. International Organisations Research Journal, 18(1), 33-74. https://doi.org/10.17323/1996-7845-2023-01-02
Nigatu, G., Badau, F., Seeley, R., & Hansen, J. (2020). Factors contributing to changes in agricultural commodity prices and trade for the United States and the world (ERR 272). USDA Economic Research Service.
Salihoglu, B., Arkin, S. S., Akoglu, E., & Fach, B. A. (2017). Evolution of future Black Sea fish stocks under changing environmental and climatic conditions. Frontiers in Marine Science, 4, 339. https://doi.org/10.3389/fmars.2017.00339
Santeramo, F. G., Lamonaca, E., Contò, F., Nardone, G., & Stasi, A. (2018). Drivers of grain price volatility: A cursory critical review. Agricultural Economics, 64, 347–356.
Scrimgeour, D. (2015). Commodity price responses to monetary policy surprises. American Journal of Agricultural Economics, 97(1), 88-102. https://doi.org/10.1093/ajae/aau054
Sujithan, K. A., Avouyi-Dovi, S., & Koliai, L. (2014). On the determinants of food price volatility. In International Conference on Food Price Volatility: Causes and Challenges (p. 50).
Thompson, W., Lu, Y., Gerlt, S., Yang, X., Campbell, J. E., Kueppers, L. M., & Snyder, M. A. (2018). Automatic responses of crop stocks and policies buffer climate change effects on crop markets and price volatility. Ecological economics, 152, 98-105. https://doi.org/10.1016/j.ecolecon.2018.04.015
Umar, Z., Jareño, F., & de Trigueros López, J. (2021). Return and volatility spillovers between crude oil and agricultural commodities. Resources Policy, 73, 102228. https://doi.org/10.1016/j.resourpol.2021.102236
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Ansuman Satapathy, Prangya Mohanty, Sambit Mishra, Debabrata Swain
This work is licensed under a Creative Commons Attribution 4.0 International License.
