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On the Evolving Relationship between Corn and Oil Prices

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  • Elmarzougui, Eskandar
  • Larue, Bruno

Abstract

The relationship between corn and oil prices is not a stable one. We identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the EU and the US in the mid 1980s while the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices which are (were not) cointegrated in the fourth regime (first three) regime(s). Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed.

Suggested Citation

  • Elmarzougui, Eskandar & Larue, Bruno, 2011. "On the Evolving Relationship between Corn and Oil Prices," Working Papers 118580, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    • Handle: RePEc:ags:ulavwp:118580
    DOI: 10.22004/ag.econ.118580
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    Cited by:

    1. Mohcine Bakhat & Klaas WŸrzburg, 2013. "Price Relationships of Crude Oil and Food Commodities," Working Papers fa06-2013, Economics for Energy.

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    More about this item

    Keywords

    Agricultural and Food Policy;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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