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A simple model of endogenous agricultural commodity price fluctuations with storage

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  • Sophie Mitra
  • Jean‐Marc Boussard

Abstract

A debate has been raging for centuries regarding the effects of inter-annual storage on commodity prices. Most analysts consider storage to function as a price stabilizer, while others place it at the core of an explanation of intriguing features of commodity price series, such as skewed distributions. Most studies have been developed in the context of the theory of competitive storage where random shocks affect supply or demand. Recently, the endogenous chaotic behavior of markets has become another possible hypothesis regarding the origin of commodity price fluctuations. We develop a nonlinear cobweb model with intra- and inter-annual storage, risk averse agents and adaptive expectations. Like the theory of competitive storage, this nonlinear cobweb model with storage can reproduce some of the stylized facts of agricultural commodity prices (autocorrelation of first rank, low kurtosis and skewness). In addition, the effects of storage on price variation are mixed. In the presence of inter-annual storage, chaotic price series show less variation compared to a situation without inter-annual storage but we find that storage contributes to the endogenous volatility of prices by making chaotic dynamics more likely.
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  • Sophie Mitra & Jean‐Marc Boussard, 2012. "A simple model of endogenous agricultural commodity price fluctuations with storage," Agricultural Economics, International Association of Agricultural Economists, vol. 43(1), pages 1-15, January.
    • Handle: RePEc:bla:agecon:v:43:y:2012:i:1:p:1-15
    DOI: j.1574-0862.2011.00561.x
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    12. Fausto Cavalli & Ahmad Naimzada & Nicol`o Pecora & Marina Pireddu, 2018. "Agents' beliefs and economic regimes polarization in interacting markets," Papers 1805.00387, arXiv.org.
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    17. Berg, Ernst, 2017. "Impacts of Inventory Management on Price Volatility in Agricultural Commodity Markets: Insights from a System Dynamics Model," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261281, European Association of Agricultural Economists.
    18. Piotr Borawski & Wojciech Gotkiewicz & James W. Dunn & Theodore Alter, 2015. "The Impact of Price Volatility of Agricultural Commodities in Polandon Alternative Incomes of Conventional, Ecological and AgritourismFarms," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 1(4), pages 299-310, April.
    19. Chaudhry, Muhammad Imran & Miranda, Mario J., 2018. "Complex price dynamics in vertically linked cobweb markets," Economic Modelling, Elsevier, vol. 72(C), pages 363-378.
    20. Chaudhry, Muhammad Imran & Katchova, Ani & Miranda, Mario Javier, 2016. "Examining pricing mechanics in the poultry value chain - empirical evidence from Pakistan," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235953, Agricultural and Applied Economics Association.
    21. Eran Guse & M. C. Sunny Wong, 2022. "Communication and Learning: The Bilateral Information Transmission in the Cobweb Model," Computational Economics, Springer;Society for Computational Economics, vol. 60(2), pages 693-723, August.
    22. Piotr BORAWSKI & Aneta BELDYCKA-BORAWSKA & James W. DUNN, 2018. "Price volatility of Polish agricultural commodities in the view of the Common Agricultural Policy," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(5), pages 216-226.
    23. Jean‐Paul Chavas & Jian Li, 2020. "A quantile autoregression analysis of price volatility in agricultural markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(2), pages 273-289, March.

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    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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