Abstract
In this paper, we revisit price and volatility transmission among natural gas, fertilizer, and corn markets; an important issue was explored in previous work. An update of the results is urgently needed due to the recent enormous price volatility in the commodities, fertilizer, and energy markets. We followed the same methodology as previous work and used the vector error correction model and the multivariate generalized autoregressive heteroskedasticity model, but we adopted a new methodology to gather higher frequency data for fertilizer to estimate the interactions and examine the mechanisms between these market prices. Our results are consistent with previous research showing that natural gas price returns in the short-term are significantly affected by its lagged returns from itself and corn markets, and it will be affected by its lagged return sand fertilizer markets. However, we did not find a significant relationship among fertilizer, corn, and natural gas markets from May to November 2021. Moreover, the lagged conditional volatility of corn prices will affect the conditional volatility in the natural gas market but not vice versa.
Highlights
Commodity markets have experienced intensive price volatility in recent years, especially in 2021
Results suggest that the fertilizer prices are positively correlated with corn prices
This is consistent with the result from Etienne et al (2016), which can be explained by the fact the farmers have an incentive to use more fertilizer when corn prices increase
Summary
Commodity markets have experienced intensive price volatility in recent years, especially in 2021. Other commodities have experienced similar price volatility as fertilizer, e.g., global food prices fell steeply in June and July 2021, and will surge to their highest levels in a decade, by November, or within three months (Alcorn 2021). Natural gas prices in the US have experienced dramatic fluctuations, reaching their highest prices since the 2005–2006 winter, with a 7-year high of record global prices (EIA 2021). These severe price changes have increased the costs of risk management, they have a negative impact on the economic recovery and growth rates of some countries, especially underdeveloped countries (Jacks et al 2011).
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