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A Simple Model of Endogenous Agricultural Commodity Price Fluctuations with Storage

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  • Sophie Mitra

    (Fordham University, Department of Economics)

  • Jean-Marc Boussard

    (Académie d'Agriculture de France)

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.

Suggested Citation

  • Sophie Mitra & Jean-Marc Boussard, 2011. "A Simple Model of Endogenous Agricultural Commodity Price Fluctuations with Storage," Fordham Economics Discussion Paper Series dp2011-05, Fordham University, Department of Economics.
    • Handle: RePEc:frd:wpaper:dp2011-05
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    4. Kornher, Lukas & Kalkuhl, Matthias, 2013. "Food Price Volatility in Developing Countries and its Determinants," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 52(4), pages 1-32, November.
    5. Raphaël Chiappini & Yves Jégourel, 2019. "Explaining the role of commodity traders: A theoretical approach," Economics Bulletin, AccessEcon, vol. 39(3), pages 2002-2013.
    6. Fabio Gaetano Santeramo & Emilia Lamonaca, 2019. "On the drivers of global grain price volatility: an empirical investigation," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(1), pages 31-42.
    7. Fausto Cavalli & Ahmad Naimzada & Nicol`o Pecora & Marina Pireddu, 2018. "Agents' beliefs and economic regimes polarization in interacting markets," Papers 1805.00387, arXiv.org.
    8. Jean-Louis Rastoin, 2018. "Accélérer la transition vers une alimentation durable par un changement de paradigme scientifique et économique et des politiques publiques innovantes," Post-Print hal-01973487, HAL.
    9. 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.
    10. Fabio Gaetano Santeramo & Emilia Lamonaca & Francesco Contò & Gianluca Nardone & Antonio Stasi, 2018. "Drivers of grain price volatility: a cursory critical review," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(8), pages 347-356.
    11. Yiyang Qiao & Minseong Kang & Byeong-il Ahn, 2023. "Analysis of Factors Affecting Vegetable Price Fluctuation: A Case Study of South Korea," Agriculture, MDPI, vol. 13(3), pages 1-16, February.
    12. Chaudhry, Muhammad Imran & Miranda, Mario J., 2018. "Complex price dynamics in vertically linked cobweb markets," Economic Modelling, Elsevier, vol. 72(C), pages 363-378.
    13. 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.
    14. Zhao, Xin & Calvin, Katherine & Patel, Pralit & Abigail, Snyder & Wise, Marshall & Waldhoff, Stephanie & Hejazi, Mohamad & Edmonds, James, 2021. "Impacts of interannual climate and biophysical variability on global agriculture markets," Conference papers 333245, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Benoit Beila MALAN, 2013. "Volatility and stabilization of the price of coffee and cocoa in Côte d'Ivoire," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(7), pages 333-340.
    16. 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.
    17. Elodie Maître d'Hôtel & Tristan Le Cotty, 2018. "Why does on†farm storage fail to mitigate price volatility?," Agricultural Economics, International Association of Agricultural Economists, vol. 49(1), pages 71-82, January.
    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 & 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.
    20. Ashutosh Vashishtha, 2020. "Cobweb price dynamics under the presence of agricultural futures market: theoretical analysis," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(2), pages 131-162, June.
    21. Santeramo, Fabio Gaetano, 2017. "Market Fundamentals And International Grain Price Volatility," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260908, European Association of Agricultural Economists.
    22. Rong-Gang Cong & Mette Termansen & Mark V. Brady, 2017. "Managing soil natural capital: a prudent strategy for adapting to future risks," Annals of Operations Research, Springer, vol. 255(1), pages 439-463, August.
    23. 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.

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    More about this item

    Keywords

    Agricultural Prices; Nonlinear Cobweb Model; Endogenous Fluctuations; Storage;
    All these keywords.

    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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