The U.S. Role in the Price Determination of Major Agricultural Commodities

The United States has historically played a dominant role in the global trade, and therefore price formation, of major food, feed and fiber commodities. As the share of agricultural commodities exports produced by the US has recently declined, international supply and demand fundamentals likely play a larger role in setting even domestic commodity prices. Using wavelet coherence methods, this article examine the relationship between U.S. and international prices for corn, soybeans, and cotton. Our results reveal that integration between the markets of major exporters and importers of these commodities evolves over time: short-run (around 20 trading days) relationships between domestic and international prices are, in many cases, not stable, and even the long-run relationships between many price pairs is subject to distinct structural breaks. As the two major agricultural commodity exporters of corn and soybeans, the US and Brazil exhibit integration in the form of consistently significant long-run price relationships. In contrast, we show that Chinese agricultural commodity prices share little or no distinguishable relationship with the U.S., even though China is one of the biggest importers of U.S. products. This is likely due to Chinese trade barriers and price support policies that, while insulating domestic prices from external shocks, kept its own prices substantially higher than other countries from 2009- 2016