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Predicting Agri-Commodity Prices: An Asset Pricing Approach

45 Pages Posted: 28 May 2010  

Yu-Chin Chen

University of Washington - Department of Economics

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Date Written: May 10, 2010

Abstract

Volatile and rising agricultural prices put significant strain on the global fight against poverty. An accurate reading of future food price movements can be an invaluable budgetary planning tool for various government agencies and food aid programs. Using the asset-pricing approach developed in Chen, Rogoff and Rossi (2010), we show that information from the currency and equity markets of several major commodity-exporting economies can help forecast world agricultural prices. Our formulation builds upon the notion that world commodity prices play a significant role in determining these countries' currency and equity valuations, so market participants would price expected future commodity price movements into the current values of these assets. Because the exchange rate and equity markets are typically much more fluid than the agri-commodity markets (where prices tend to be more constrained by current supply and demand conditions), these asset prices can signal future agricultural price dynamics beyond information contained in the agri-commodity prices themselves. Our findings complement forecast methods based on structural factors such as supply, demand, and storage considerations.

Keywords: ommodity prices, exchange rates, equity prices, forecasting

JEL Classification: C52, C53, F31, F47

Suggested Citation

Chen, Yu-Chin and Rogoff, Kenneth and Rossi, Barbara, Predicting Agri-Commodity Prices: An Asset Pricing Approach (May 10, 2010). Available at SSRN: https://ssrn.com/abstract=1616853 or http://dx.doi.org/10.2139/ssrn.1616853

Yu-Chin Chen (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States
206-543-6197 (Phone)

HOME PAGE: http://faculty.washington.edu/yuchin

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

Littauer Center
Room 232
Cambridge, MA 02138
United States
617-495-4022 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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