The Nature and Determinants of Volatility in Agricultural Prices

Abstract

The volatility of 19 agricultural commodity prices are examined at monthly and annual frequencies. All of the price series are found to exhibit persistent volatility (periods of relatively high and low volatility). There is also strong evidence of transmission of volatilities across prices. Volatility in oil prices is found to be a significant determinant of volatilities in the majority of series and, likewise, exchange rate volatility is found to be a predictor of volatility in over half the series. There is also strong evidence that stock levels and yields are influencing price volatility. Most series exhibit significant evidence of trends in their volatility. However, these are in a downward direction for some series and in an upward direction for other series. Thus, there is no general finding of long term increases in volatility across most agricultural price