Dynamic and Spatial Relationships in US Rice Markets

Spatial market integration refers to the smooth transmission of price signals and information across spatially separated markets. This paper investigates whether US rice markets are spatially integrated and whether these markets are integrated across rice varieties. Understanding dynamic and spatial relationships across regions and varieties provides important insights for policy making. Rice is among the top seven US major crops in terms of harvested acres – covering over 2.6 million acres – and sixth in terms of sales, with annual cash receipts around 3.1 billion dollars. Of the four major producing regions, three are in the South – Arkansas-Missouri, Louisiana-Mississippi, and Texas, and the other is California. The varieties are different associated with the production region. California mainly produces short and medium grain; while Arkansas, Texas, and Louisiana produces mostly long also medium grain. We investigate the potential market integration of these rice markets by applying a Vector Error Correction Model to monthly f.o.b. milling price data from 1980 to 2014. Arkansas-Missouri region is identified as the leading price in the variety of long grain also medium grain markets. Interestingly, Arkansas-Missouri medium grain plays an additional important role in the long grain market. California short grain market seems to move somewhat independently (weakly exogenous) in the short run, but its price movement is affected by Arkansas-Missouri medium grain in the longer term