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Regional Wholesale Price Relationships: The Case of Peaches

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  • Aguilar, Cristobal
  • Raper, Kellie Curry
  • Thornsbury, Suzanne

Abstract

An important characteristic of agricultural commodity markets is the extent to which those markets respond to price changes in related markets. Given a competitive market structure, the Law of One Price (LOP) postulates that spatial price relationships are determined by transfer cost1 among regions and that spatial arbitrage restores market equilibrium (Tomek and Robinson, 2003). Spatial price relationships are of particular relevance to farmers in designing market strategies. Measurements of spatial price relationships provide insights about the dynamics of price movements, thus increasing understanding of likely behavior of supply or demand areas in the market (Jordan and Van Sickle, 1998). For example, knowledge of which regions lead prices, the degree to which market shocks are transmitted via prices among regions, and the regional market reaction time can all be useful in designing market strategy. This study analyzes spatial wholesale price relationships for fresh U.S. peaches using vector autoregressive analysis (VAR) on weekly prices from the primary wholesale markets of four U.S. regions. Primary objectives of the study are: (1) to determine the degree of market segmentation as well as the direction and magnitude of market integration among regions, and (2) to evaluate the sensitivity of U.S. fresh peach wholesale markets to individual shocks in the five regions. The study is organized as follows. We first present an overview of the U.S. fresh peach sector. Next, the relevant methodology and data is described. Results and conclusions follow.

Suggested Citation

  • Aguilar, Cristobal & Raper, Kellie Curry & Thornsbury, Suzanne, 2005. "Regional Wholesale Price Relationships: The Case of Peaches," Agricultural Economic Report Series 10927, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    • Handle: RePEc:ags:midaae:10927
    DOI: 10.22004/ag.econ.10927
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    References listed on IDEAS

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    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Pier Giorgio Ardeni, 1989. "Does the Law of One Price Really Hold for Commodity Prices?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 661-669.
    3. Martin Ravallion, 1986. "Testing Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 102-109.
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    Demand and Price Analysis;

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