Volatility Spillover and Time-Varying Conditional Correlation Between DDGS, Corn, and Soybean Meal Markets

39 Pages Posted: 30 Jul 2016

See all articles by Xiaoli Etienne

Xiaoli Etienne

West Virginia University - Division of Resource Management

Andrés Trujillo-Barrera

Wageningen UR

Linwood Hoffman

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Date Written: July 18, 2016

Abstract

In this paper, we seek to identify the price and volatility transmission mechanisms between DDGS, corn, and soybean meal markets to better inform market participants who wish to manage price risks in these three markets. Using weekly data from January 2000 to May 2016, we find important interplays between the three markets in both price and volatility dynamics. We uncover a stable long-run equilibrium between the three prices, and find that in the long-run, DDGS prices are positively correlated with both corn and soybean meal prices. However, corn and soybean meals are weakly exogenous — neither markets respond to deviations from this long-run relationship. We also find strong time-varying dynamic conditional correlations between the three markets, with the correlation between DDGS and corn strengthening between 2006 and 2012, the period when ethanol production in the US underwent massive expansion. Additionally, we identify significant volatility spillovers from both the corn and soybean meal markets to the DDGS market, with the impact from corn shocks much larger compared to soybean meal shocks. Corn appears to be the primary channel through which exogenous shocks are transmitted to the DDGS market. Our results also suggest that neither DDGS prices nor volatility significantly impact the corn and soybean meal markets.

Keywords: distillers’ grains with solubles, corn, soybean meals, price, volatility, spillover, dynamic correlations

JEL Classification: Q11, Q14, O13, C5, C00

Suggested Citation

Etienne, Xiaoli and Trujillo-Barrera, Andrés and Hoffman, Linwood, Volatility Spillover and Time-Varying Conditional Correlation Between DDGS, Corn, and Soybean Meal Markets (July 18, 2016). Available at SSRN: https://ssrn.com/abstract=2811255 or http://dx.doi.org/10.2139/ssrn.2811255

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

Linwood Hoffman

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States

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