Abstract
More than half of total production costs for dairy producers is represented by feed, whose price level strongly depends on maize price patterns. However, the literature paid no attention to this vertical price transmission dynamics. This paper tries to fill the gap by investigating the interrelationship between Italian maize and feed prices, proposing a novel two-regime threshold-cointegration model where regimes are triggered by an observable transition variable. The latter accounts for both fundamental and non-fundamental drivers that recent literature found to be potential triggers influencing the transmission process. Empirical results suggest that the impact of non-fundamentals, especially financialization and energy price, is quite weak, whereas market fundamentals still play a significant role in shaping the price transmission dynamics. Furthermore, the cointegration relationship is found to be non-continuous, with several interruptions.
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