Is there co-movement between the China and US agricultural futures markets?

Abstract

The world has been witnessing dramatic increases in both the level and volatility of international agricultural prices in the recent years. The unprecedented price spikes in agricultural commodities during the 2007–2008 food crises, as accompanied by shortages and diminishing agricultural stocks, resulted in a reduced access to food for millions of poor people in a large number of the low income, net food-importing countries. Worse, Egypt, Haiti, Kenya and other countries have suffered political turmoil because of the food shortages. The escalation of several agricultural crop prices, particularly soybean and wheat, and the prevailing high price volatility have all reinforced the global fears regarding volatile food prices. An urgent attention has turned to further examining food price volatility in global markets. Agricultural production has played an important role in the Chinese history since the ancient times. There is a famous old saying, “Food is the first necessity of the people”. As a country with such a large population, an agricultural crisis may occur if we cannot properly address agricultural concerns. Therefore, the issue of agriculture in China is not only an economic problem but also a great political issue. With the development of the China’s market-oriented economy, opening the China’s agricultural product market to the world is unavoidable. Fortunately, the pricing of agricultural products is set by the market instead of by a government regulation. Furthermore, the Chinese agricultural product market will also experience fluctuations from the international market. Particularly in recent years, the international market and domestic market suffer high fluctuations at the same time, which has a negative effect on the supply and demand of agricultural products. China and the US are both important countries in the international market. The movement of either of the two markets deeply affects the international market; therefore, the need for understanding the comovement between the China and US futures markets should by no means be underestimated. The Chinese