The COVID-19 Effects on Agricultural Commodity Markets

Abstract

This study examines the effect of the COVID-19 pandemic on major agricultural commodity prices (cattle, cocoa, coffee, corn, cotton, hog, rice, soya oil, soybeans, soybean meal, sugar and wheat) using daily data from February 28, 2020 to November 20, 2020. We measured COVID-19 effect using a news-based sentiment index. A novel nonparametric causality-in-quantiles test was used to test the effect of the COVID-19 sentiment on agricultural commodity prices and price volatility. We found significant causality from the news-based COVID-19 sentiment to mean of the agricultural commodity prices in the lower and upper ranges of the quantiles, but not in the quantiles around the median, implying that the COVID-19 sentiment largely causes extreme changes in the agricultural commodity prices. Moreover, findings show that the COVID-19 sentiment is also causal for variance of agricultural commodity prices, but only above the quantile ranges above the first quarter. Thus, COVID-19 is causal for large volatility changes in agricultural commodity prices. Accordingly, the extremely negative sentiment associated with COVID-19 has not only caused a price crash in agricultural markets, but also significantly increased market risk.