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Ferri Giovani (University of Bari Aldo Moro, Italy), Patruno Giuseppe (University of Bari Aldo Moro, Italy), Pesce Giovani (University of Bari Aldo Moro, Italy)
Is There a Dangerous Liaison Between Food and Fuel? : Evidence from the CBOT Futures Market
Zeszyty Naukowe Uniwersytetu Szczecińskiego. Finanse, Rynki Finansowe, Ubezpieczenia, 2009, nr 16, s. 279-290, rys., tab., bibliogr. 6 poz.
Żywność, Paliwa alternatywne, Rynek, Biopaliwa, Analiza zdarzeń
Food, Alternative fuels, Market, Biofuels, Event study
During 2007-2008 the price per barrel of oil almost tripled and then dropped back to its initial levels. It was argued that the common oscillation in the price of wheat might depend on its increasing use to make bio-fuel. In turn, the abrupt raise in the price of wheat made foodstuffs relatively more expensive vis-r-vis other goods and, since food absorbs a larger share of the consumption basket for poor countries (households), worries surfaced on inequality and poverty. Being oil an exhaustible re- source, those worries - now abated by the global crisis - could come back when the world economy will recovers: the price of wheat might be pushed up again by a new surge in the price of oil. But is this co-movement between the two prices a spurious correlation or is it really driven by a causal nexus going from the price or oil to the price of wheat? To answer this question we employ data from CBOT futures prices - from the beginning of November 1998 to mid January 2009 - and develop a novel identification strategy. Via event study methodology we check whether wheat prices have increased based on negative events - when OPEC meetings set oil production below expecta- tions - and decreases because of positive events - and when OPEC meetings set oil production above expectations. While we failed to detect any significant change in the price of wheat around negative events, we do find that the price of wheat decreased significantly on the occasion of positive oil price events. Though caution is in order considering the small number of positive events, our evidence sug- gests a causal link going from oil prices to wheat prices. This appears consistent with the conjecture that bio-fuels are indeed providing a link between the two markets. The worries on poverty seem germane. (original abstract)
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  1. Bibliography Binder, John J. "The Event Study Methodology since 1969" Review of Quantitative Finance and Accounting, Volume 11, Issue 2 (September 1998), pp. 111-137.
  2. Elobeid, Amani and Tokgoz, Simla "Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?" American Journal of Agricultural Economics, Volume 90, Issue 4 (November 2008), pp. 918-932.
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  5. Subramani, Mani and Walden, Eric "The Dot Com Effect: the Impact of E-Commerce Announcements on the Market Value of Firms" Proceedings of the Twentieth International Conference on Infor­mation Systems, Charlotte, North Carolina, December 12-15, 1999, pp. 193-207.
  6. The Economist, "Food for thought. Famine, farm prices and aid. Soaring prices for products like rice and wheat are causing headaches for aid agencies and politicians". March 27th 2008.
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