Understanding the role of supply and demand factors in the global wheat market: a Structural Vector Autoregressive approach

50 Pages Posted: 27 Oct 2023 Last revised: 4 Nov 2023

See all articles by Daniele Valenti

Daniele Valenti

University of Milan

Danilo Bertoni

University of Milan

Alessandro Olper

Università degli Studi di Milano; KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Daniele Cavicchioli

University of Milan

Date Written: October 26, 2023

Abstract

We present a Bayesian structural Vector Autoregressive model of the global wheat market to examine the relative importance of supply and demand shocks, which are interpreted as the fundamental driving forces of wheat price. To our knowledge, this is the first SVAR analysis that jointly considers (i) a Bayesian non-recursive specification, (ii) production and inventories as endogenous variables (iii) and an inventory-based detection strategy. Our main results indicate that: (i) the posterior median estimates for the price elasticity of supply and demand are mostly similar in their order of magnitude but opposite in signs (0.19 for supply and -0.20 for demand); (ii) the price and the inventories respond to global wheat market shocks differently, depending on the type of structural shock. We also show that the results obtained from Cholesy-type identified annual SVAR models for wheat market are potentially misleading and difficult to reconcile with the economic theory of competitive storage. Finally, we illustrate how unpredictable shifts in supply and demand contributed to the dynamic of wheat price between 2000 and 2022.

Keywords: Bayesian structural VAR model, Price analysis, Global wheat market

JEL Classification: C11, C32, Q11, Q13

Suggested Citation

Valenti, Daniele and Bertoni, Danilo and Olper, Alessandro and Cavicchioli, Daniele, Understanding the role of supply and demand factors in the global wheat market: a Structural Vector Autoregressive approach (October 26, 2023). FEEM Working Paper No. 21, Available at SSRN: https://ssrn.com/abstract=4615087 or http://dx.doi.org/10.2139/ssrn.4615087

Daniele Valenti (Contact Author)

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

Danilo Bertoni

University of Milan

Via Festa del Perdono
Milano
Italy

Alessandro Olper

Università degli Studi di Milano ( email )

Via Celoria, 2
Milano, 20133
Italy
+390250316481 (Phone)
+390250316486 (Fax)

HOME PAGE: http://users.unimi.it/olper/

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Daniele Cavicchioli

University of Milan

Via Festa del Perdono
Milano
Italy

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