Price and Volatility Transmissions between Natural Gas, Fertilizer, and Corn Markets

34 Pages Posted: 31 Oct 2015

See all articles by Xiaoli Etienne

Xiaoli Etienne

West Virginia University - Division of Resource Management

Andrés Trujillo-Barrera

Wageningen UR

Seth Wiggins

West Virginia University - Division of Resource Management

Date Written: October 30, 2015

Abstract

We investigate the price and volatility transmission between natural gas, fertilizer (ammonia), and corn markets, an issue that has been traditionally ignored in the literature despite its significant importance. Using a Vector Error Correction Model for the conditional mean equation and a Multivariate Generalized Autoregressive Heteroskedasity model for the conditional volatility equation, we find significant interplay between fertilizer and corn markets, while only a mild linkage in prices and volatility exist between those markets and natural gas during the period 1994-2014. There is not only a positive relationship between corn and ammonia prices in the short-run, but both prices react to deviation from the long-run parity. Furthermore, the lagged conditional volatility of ammonia prices positively affects conditional volatility in the corn market and vice versa. This result is robust to a specification using crude oil price as an alternative to natural gas price to account for the large transportation cost built into ammonia prices. Results for the period of 2006-2014 indicate virtually no linkage between natural gas prices and those of fertilizer and corn during that period, while linkages in price level and volatility between the latter remain strong. This article is the first in the literature to comprehensively examine the role of fertilizer on corn prices and volatility, and its relation to natural gas prices.

Keywords: price, volatility, natural gas, fertilizer, corn, shale production, transmission mechanism

JEL Classification: N51, Q11, Q12, Q13, Q14, Q41

Suggested Citation

Etienne, Xiaoli and Trujillo-Barrera, Andrés and Wiggins, Seth, Price and Volatility Transmissions between Natural Gas, Fertilizer, and Corn Markets (October 30, 2015). Available at SSRN: https://ssrn.com/abstract=2684047 or http://dx.doi.org/10.2139/ssrn.2684047

Xiaoli Etienne (Contact Author)

West Virginia University - Division of Resource Management ( email )

Morgantown, WV 26506
United States

Andrés Trujillo-Barrera

Wageningen UR ( email )

Hollandseweg 1
Wageningen, 6706KN
Netherlands

Seth Wiggins

West Virginia University - Division of Resource Management ( email )

Morgantown, WV 26506
United States

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