Original Paper Agric.

Econ – Czech, 61, 2015 (9): 410–421

doi: 10.17221/231/2014-AGRICECON

The interactions between agricultural commodity and

oil prices: an empirical analysis
Ayhan KAPUSUZOGLU1, Merve KARACAER ULUSOY2
1
Department of Banking and Finance, Business School, Yildirim Beyazit University, Ankara,
Turkey
2
Department of Marketing, Business School, Yildirim Beyazit University, Ankara, Turkey

Abstract: The purpose of the study is to analyse the short and long-term relationships between the world oil prices (Europe
Brent Spot Price and West Texas Intermediate Spot Price) and the agricultural commodity prices (Wheat, Corn and Soy-
beans). The analysis is based upon the data set covering the monthly period of 1990.01–2014.05. According to the Johansen
co-integration tests results, there are no long-run relationships between each agricultural commodity prices and world oil
prices at the 5% significance level. On the other hand, according to the results of the Granger causality tests, there are uni-
-directional causality relationships from the Europe Brent and West Texas Intermediate oil prices to Wheat at the 1% and
5% significance level respectively, to Corn at the 1% and 1% significance level respectively and to Soybeans at the 1% and 5%
significance level respectively. No causality relationship from the agricultural commodity prices to world the oil prices has
been observed.

Key words: causality, co-integration, commodity prices, world energy prices

There are several factors that affect the agricultural decreases the productivity. As the price of the ma-
commodity prices. Hanson et al. (1993) investigate the jor commodities and the crude oil are from U.S.
impact of an oil pri ce shock on the U.S. agriculture dollars, a decrease in dollar makes the commodity
sector using the annual data between the periods prices rise because the demand for the U.S. agri-
of 1973–1982 by applying the Computable General cultural commodities increases as well as the oil
Equilibrium model and report that when compared prices. Furthermore, the higher oil prices increase
with the other sectors, the agricultural sector is the transportation and input costs, like the fertilizer
energy-intensive and the effect of oil price shocks and biodiesel, decrease productivity and this leads
on agricultural commodities vary between each to an increase in the commodity prices. According
commodity. The authors indicate that the oil price to the writers, in the last years, the reason that the
shocks have a negative impact on the agricultural demand for corn has increased is that its utilization
sector. Baffes (2013) reveals that the energy prices for the ethanol production is increased (Figure 1).
and food market are interdependent because the During the mid-2000s, the commodity price boom
high-energy prices increase the cost of producing has taken place. The IMF’s Primary Commodity Price
food commodities and encourage policies to pro- Index increased 120 percent from 2005 to 2008 and
duce biofuels from food crops. He also reports that 100 percent from 2007 to 2008. After the 2008 crisis,
the high energy prices may increase the amount there was a sharp decrease in the commodity prices
of the energy content crops, which will cause high but after 2009, the prices watched an upward trend
food prices. As a result, crude oil prices are the key until 2011. For the last two years (2013–2014), the
determinant of food prices. prices seem to move horizontally (Figure 2). This
The results of the study of Abbott et al. (2009) volatility in the commodity prices hence has attracted
show that the increase in economic growth increases the attention of many researchers, global investors and
the demand for agricultural commodities whereas policy makers and this raised the common question

This study was orally presented at 2nd International Congress on Energy Efficiency and Energy Related Materials held
between 16th–19th October 2014, Fethiye, Turkey and only the abstract was published in the conference proceedings CD.

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doi: 10.17221/231/2014-AGRICECON

Demand for
agricultural
 commodity
Economic growth 

The productivity

Demand for 
 agricultural
Crude oil
 commodity

$ $ 
Commodity
prices

Commodities  Oil prices

Figure 1. The factors that affect commodity prices

Source: created by the authors

of whether the energy prices have an impact on the strongly industrialized countries, especially China and
commodity prices. Many studies report that there the Middle East and the inability to raise the global
is a causal relationship running from the oil prices production are the main reasons that cause prices rise.
to the agricultural commodity prices (Gilbert 2010; Kilian (2008) reveals that the oil shocks happen from
Saghaian 2010; Nazlioglu 2011; Nazlioglu and Soytas the increase in the global demand of industrial com-
2012; Gozgor and Kablamaci 2014; Wang et al. 2014). modities, the demand and supply shifts in the crude
The effects of high oil prices on macro-economic oil and the effect of oil shocks on the macro-economy
activities forced many researchers to study the causes differ whether they are demand-side or supply-side.
of the oil price shocks. According to Hamilton (2008) Wheat, corn and soybeans have a key importance
the low price elasticity of demand, high demand of for the world energy markets. Corn and soybeans

Figure 2. Indices of Primary Commodity Prices

1/ Combines indices of the non-fuel primary commodity prices and energy prices; 2/ Deflated by the U.S. CPI
Source: IMF Primary Commodity Price System)

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doi: 10.17221/231/2014-AGRICECON

are especially used in the production of the ethanol to examine the relationship between the crude oil
and biofuel. In addition to this, the fluctuations in prices and the agricultural commodity prices. By
the prices of corn and soybeans push farmers to applying a Stochastic Volatility with Merton Jump
enhance production and this situation may cause a in Return (SVMJ) model, they find that the oil price
potential increase in the wheat prices. Furthermore, shocks induce the agricultural commodity prices to
the situation of an increase on the demand of bio- change sharply, especially for corn and wheat. Kwon
fuels may push the energy prices up as well as the and Koo (2009) examine the relationship among the
environmental concerns (Nazlioglu 2011). According energy prices, the exchange rate and food prices by
to the explanations and information stated above, applying the Toda-Yamamoto and Dolado-Lutkepohl
the aim of this study is to investigate the short and (TYDL) Granger causality test, covering the monthly
long-term relationships between the world oil prices period from January 1998 to July 2008. The authors
(Europe Brent Spot Price and West Texas Intermediate report that there is a uni-directional causality run-
Spot Price) and the agricultural commodity prices ning from the energy prices to food prices. Saghaian
(Wheat, Corn and Soybeans). (2010) applies the Vector Error Correction Model
(VECM) and the Granger causality analyses using the
monthly data from 1996 to 2008 in order to determine
LITERATURE REVIEW the impact of the oil market on commodity prices.
The author concludes that there is a uni-directional
The literature on the relationship between oil prices causality running from the world crude oil prices to
and the agricultural commodity prices is quite exten- corn, soybeans and wheat prices. Chen et al. (2010)
sive. Baffes (2007) investigates the impact of the crude use the Autoregressive Distributed Lag Modelling
oil price on 35 internationally traded commodities (ARDL), covering the weekly periods from 1983 to
by using the annual data from 1960 to 2005 with the 2010 in order to investigate the relationship between
OLS regression method. The results of the study the crude oil price and the global grain prices (corn,
show that the pass-through from crude oil prices to soybeans and wheat). Their first period findings re-
fertilizers index, beverages index, fats and oils index, port that a 1% increase on oil price will raise corn,
food index, cereals index, agriculture index, other soybeans and wheat prices by 29.41%, 155.50% and
food index, non-energy index, metals index and raw 41.30% respectively. The authors conclude that each
materials index is; 0.33, 0.26, 0.19, 0.18, 0.18, 0.17, grain price is affected by the crude oil and other grain
0.17, 0.16, 0.11 and 0.04 respectively. Campiche et al. prices and the increasing demand of bio-fuels is a
(2007) use the weekly data, covering the 2003–2007 strong rival for grain products in order to produce
periods and the Johansen co-integration analysis in ethanol or biodiesel by using soybeans or corn when
order to investigate the long run relationship between the crude oil prices are high. Nazlioglu (2011) evalu-
the crude oil prices and the agricultural commodity ates the relationship between the world oil prices and
(corn, sorghum, sugar, soybeans, soybeans oil and the three key agricultural commodity prices (wheat,
palm oil) prices and report that during 2003–2005 corn and soybeans) by using weekly period from 1994
period there is not any co-integration relationship to 2010 and the Toda-Yamamoto (TY) and the Disk-
between the crude oil prices and the agricultural Panchenko (DP) causality analyses. While the results
commodity prices, whereas there is a co-integration of the linear causality analysis support the neutrality
relationship between the crude oil prices and both hypothesis, which suggests that there is not any causal-
corn and soybeans prices during the 2006–2007 time ity between oil prices and the agricultural commodity
interval. Mitchell (2008) investigates the factors which prices, the results of the non-linear causality analysis
affect the internationally traded food commodity show that there is a very strong uni-directional non-
prices (maize, wheat, rice, soybeans, etc.), covering linear causality running from oil prices to corn and
the monthly period between 2002 to 2008 and reports soybeans prices. On the other hand, Adämmer and
that one of the most important factors that pushed Bohl (2015) use the monthly data from 1993 to 2012
the food prices up after late-2006 was the increase in and the Momentum Treshold Autoregressive Method
both the U.S. and the EU biofuels production which (MTAR), the VEC model and the Granger causality
refers to ethanol and biodiesel in his paper. Du et al. analysis and find out that there is a uni-directional
(2011) use weekly data from 1998 to 2009 and study causality running from oil prices to wheat prices
the factors that affect the price of crude oil in order whereas they is not any long-run relationship for

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Agric.Econ – Czech, 61, 2015 (9): 410–421 Original Paper

doi: 10.17221/231/2014-AGRICECON

corn and soybeans. The authors also conclude that agricultural commodity prices; cocoa, soybean, barley,
there is a bi-directional causality between the real oil wheat, corn, cotton, rice, coffee and tea. The authors
price and the real exchange rate. Nazlioglu and Soytas divide their sample periods into two groups, the
(2012) investigate the relationship between the world pre-crisis and the post-crisis, and report that the oil
oil prices and the agricultural commodity prices by price changes have more impact on the agricultural
using the monthly data from 1980 to 2010 and the panel commodity prices in the post-crisis period than in
co-integration and the Granger causality techniques. the pre-crisis period.
The results of their study show that the change in oil Not only oil price changes, but also the exchange
prices and the weak dollar have a strong impact on rates are one of the key factors that affect the agri-
many agricultural commodity prices. Nazlioglu et al. cultural commodity prices. By using the Granger cau-
(2013) investigate the volatility spillover between oil sality analysis, Chen et al. (2008) examine Australia,
and agricultural commodity (wheat, corn, soybeans Canada, Chile, New Zealand and South Africa in
and sugar) prices. The authors use the daily data from their study and state that the exchange rates can be
1986 to 2011 and separate their sample group into used to forecast future commodity prices. Harri et
two groups: the pre-food crisis and the post-food al. (2009) use the VAR model, covering the monthly
crisis by applying the Generalized Autoregressive period from 2000 to 2008 and find out that while
Conditional Heteroskedasticity (GARCH) technique. there is a co-integration relationship between corn,
According to the results, although there is no volatility cotton, soybeans and crude oil prices and exchange
spillover from oil to agricultural commodities in the rates, the same result is not valid for wheat. Frank
pre-crisis period, for the post-crisis period there is and Garcia (2010) analyse the relationship among the
a uni-directional volatility spillover from oil to corn crude oil prices, exchange rates and the agricultural
prices and a bi-directional volatility spillover between commodity prices. The authors divide their sample
oil-soybeans and oil-wheat. The authors could not find into two groups. For the weekly data from 1998 to
any volatility spillover between oil and sugar prices. 2006 and from 2006 to 2009, they use the VAR and
Gozgor and Kablamaci (2014) applied the Panel-Wald VEC models, respectively. The results indicate that
Causality test, covering the monthly periods of January between 2006–2009 periods the effects of oil price
1990 and June 2013 in order to investigate the relation- and exchange rates on the agricultural commodity
ship among the world oil prices, the real effective U.S. prices are greater than the 1998–2006 period. By
dollars, the global market risks and 27 agricultural using the Granger causality technique, covering the
commodity prices. The results show that there is a quarterly period from 1969 to 2008, Gilbert (2010)
uni-directional causality running from oil prices, the addresses that the world GDP growth, the monetary
real effective U.S. exchange rate and the VIX index expansion, oil price and the dollar exchange rate have
to 25 agricultural commodity prices and the weak a causal impact on the agricultural commodity prices.
U.S. dollar has a positive effect on agricultural com- In the literature, there are also some studies that
modity prices. Moreover, the authors report that the do not find any causal relationship between oil prices
agricultural industry is an energy intensive industry and the agricultural commodity prices, which sup-
and oil plays a very important role in the production port the neutrality hypothesis. For example, Yu et al.
process of agricultural commodities. (2006) investigate the long-run relationship among
Some researchers investigate the effects of the oil soybean, sunflower, rapeseed, palm oil and world
demand and supply shocks on commodity prices. crude oil prices by using the co-integration and
Mutuc et al. (2010) perform the Structural Vector causality analyses, covering the weekly period from
Autoregression (SVAR) analysis, covering the monthly 1999 to 2008. The authors report that the world crude
period from 1976 to 2008 and report that while the oil prices do not have any significant impact on the
increase in the global oil demand impacts the U.S. edible oil prices. Zhang and Reed (2008) examine the
agricultural commodity (cotton, soybeans, corn and relationship between the world crude oil prices and
wheat) prices; the oil supply shocks do not have any China’s agricultural commodity prices (corn, soybean
impact on these commodity prices. By using the SVAR and pork) based on monthly data from 2000 to 2007
analysis between the monthly periods from 1980 to and the Granger causality analysis. The authors report
2012, Wang et al. (2014) address the impact of three that even though the high crude oil prices increase
oil price shocks; the oil supply shocks, the aggregate the cost of production, they are not a significant
demand shocks and other-oil specific shocks on nine factor for the prices of the selected agricultural com-

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modities in China. Zhang et al. (2010) use the VEC support the neutrality hypothesis, which suggests that
model and the Granger causality analysis based on the there is a non-co-integration relationship between oil
monthly data from 1989 to 2008 and report that there prices and the agricultural commodity prices. Rosa
is not any long run and short-run causality between and Vasciaveo (2012) investigate the relationship
the fuel (oil, gasoline and ethanol) and agricultural between oil prices and the agricultural commodity
commodity (corn, soybeans, wheat, sugar and rice) prices in Italy and the United States, covering the
prices. Kaltalioglu and Soytas (2011) examine the weekly period between 1999 and 2012. The authors
volatility spillover among oil, food and agricultural apply the linear and non-linear Granger causality
raw markets by using the monthly data from 1980 to tests and report that there is no causal relationship
2008 and the Cheung-Ng Granger causality approach. between oil and the agricultural commodity prices
The results of the study show that there is no causal- both in Italy and the United States. Fang et al. (2014)
ity running from oil prices to food and agricultural perform the TY causality analysis using the weekly
raw markets. Nazlioglu and Soytas (2011) apply the data for the period from 2004 to 2012 and report that
TY causality analysis, covering the monthly period there is no causal relationship running from domestic
between 1994 and 2010. The authors state that the oil price to the agricultural commodity (rice, flour,
world oil prices and agricultural commodity (wheat, soybean oil, peanut oil, grape seed oil, salad oil, egg,
maize, cotton, soybeans, and sunflower) prices do white granulated sugar, salt and white chicken meat)
not cause each other in Turkey, which supports the prices in China. Zhang and Chen (2014) investigate
neutrality hypothesis. Reboredo (2012) investigates the impact of oil price shocks on China’s metals, pet-
the relationship between the world oil prices and the rochemicals, grains and oil fats industries by using
agricultural commodity (corn, soybean and wheat) the Autoregressive Moving Average (ARMA) and the
prices using the weekly data from 1998 to 2011. The GARCH techniques using the daily data from 2001
author applies several copula models and the results to 2011. The authors report that oil price shocks do

Table 1. Causality Studies between the Oil and Agricultural Commodity Prices

Author Period Methodology Causal Relation

Adämmer and Bohl MTAR, VECM, Granger Oil → Wheat
1993–2012
(2015) Causality Real Exchange Rate ↔ Real Oil Price
Fang et al. (2014) 2004–2012 Toda-Yamamoto Causality No causal relation
GDP growth, monetary expansion, oil price and
Gilbert (2010) 1969–2008 Granger Causality
dollar → agricultural commodity prices
Gozgor and Kablamaci Oil and reel effective U.S. exchange rate and VIX
1990–2013 Panel-Wald Causality Analysis
(2014) index → agricultural commodity prices
Kaltalioglu and Soyas
1980–2008 Granger Causality No causal relation
(2011)

Toda-Yamamoto Granger
Kwon and Koo (2009) 1998–2008 Energy Price → Food Price
Causality
Toda-Yamamoto and Disk- The Non-Linear Causality Analysis: Oil → Corn
Nazlioglu (2011) 1994–2010
Panchenko Causality Analysis and Soybeans
Nazlioglu and Soytas VAR, Toda-Yamamoto
1994–2010 No causal relation
(2011) Causality
Nazlioglu and Soytas Panel Co-integration and
1980–2010 Oil price and Dollar → Agricultural Commodity
(2012) Granger Causality
For Post-Crisis Period: Volatility Spillover Oil →
Causality in Variance Test
Nazlioglu et al. (2013) 1986–2011 Corn, Oil ↔ soybeans and Oil ↔ Wheat
(GARCH)
No Volatility Spillover Oil → Sugar
Rosa and Vasciaveo Co-integration Analysis,
1999–2012 No causal relation
(2012) Granger Causality
Saghaian (2010) 1996–2008 VECM, Granger Causality Crude Oil → Corn, Soybeans and Wheat
Co-integration, Granger
Yu et al. (2006) 1999–2006 No causal relation
Causality
Zhang and Reed (2008) 2000–2007 Granger Causality No causal relation
Zhang et al. (2010) 1989–2008 VECM, Granger Causality No causal relation

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Table 2. Descriptive Statistics

Variable Mean Std. Dev. Min. Max. Skewness Kurtosis JB Obs.

Brent Level 46.481 35.076 9.820 132.720 0.913 2.381 45.406*** 293
Log 3.565 0.732 2.284 4.888 0.357 1.691 27.135*** 293
WTI Level 45.707 31.268 11.350 133.880 0.826 2.310 39.143*** 293
Log 3.595 0.670 2.429 4.896 0.316 1.631 27.772*** 293
Corn Level 144.094 65.587 75.057 332.947 1.391 3.786 102.145*** 293
Log 4.887 0.387 4.318 5.807 0.930 2.658 43.735*** 293
Soybeans Level 289.056 118.024 158.312 622.913 1.097 2.932 58.926*** 293
Log 5.595 0.365 5.064 6.434 0.699 2.258 30.640*** 293
Wheat Level 189.336 74.296 102.161 439.716 1.097 3.176 59.205*** 293
Log 5.176 0.355 4.626 6.086 0.616 2.297 24.594*** 293

*** denote statistical significance at 1% level of significance

not have any significant impact on the metal and US Dollars per Barrel and West Texas Intermediate
grain indices. We summarized some studies in the (WTI) Spot Price/US Dollars per Barrel). The data
literature, in this direction Table 1 is given below: span the time period from January 1990 to May 2014,
thus providing 293 observations for each variable, and
the frequency of the data used is monthly. For the
DATA AND METHODOLOGY empirical analysis, the data on oil prices are collected
from the database of the U.S. Energy Information
This paper investigates the short and long term Administration (EIA) and the agricultural commod-
relationships between the agricultural commodity ity price indexes (2005 = 100) are obtained from the
prices (Corn/US Dollars per metric Ton, Soybeans/ statistical database of the International Monetary
US Dollars per metric Ton and Wheat/US Dollars per Fund (IMF). All the price series are measured in US
metric Ton) and oil prices (Europe Brent Spot Price/ Dollars and expressed in natural logarithms. The de-

BRENT WTI
5.0 5.0

4.5 4.5

4.0 4.0

3.5 3.5

3.0 3.0

2.5 2.5

2.0 2.0
90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14

CORN SOYBEANS
6.0 6.50

6.25
5.6

6.00
5.2
5.75
4.8
5.50

4.4
5.25

4.0 5.00
90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14

WHEAT
6.4

6.0

5.6

5.2

4.8
Figure 3. Oil and Agricultural Commodity Prices in
4.4
90 92 94 96 98 00 02 04 06 08 10 12 14 Log Level 
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scriptive statistics in level and log-level of all related test made for the determination of stability is called
variables are presented in Table 2. From the Jarque- the Phillips-Perron (PP). The distribution theory on
Bera statistic, it is concluded that the variables do which the Dickey-Fuller tests are based on assumes
not follow the normal distribution. that the errors are statistically independent and have
Figure 3 shows the prices of the all variables dur- a fixed variance. The Phillips-Perron (1988) approach
ing the period of the time. At this stage, it is rather allows loosening these assumptions relating to the
evident that as oil prices, the Europe Brent price and distribution of errors (Enders 1995).
the West Texas Intermediate price exhibit a rather The excess sensitivity of the results obtained from
strong co-movement. Moreover, the developments the ADF and PP tests to the lag length determined
in these agricultural commodity prices also exhibit has been criticized time to time. In this context, it is
a rather strong co-movement. As it is understood observed that the Kwiatkowski-Phillips- Schmidt-Shin
from the Figure 3, the increase in corn, soybeans and (KPSS 1992) stationarity test, which is not sensitive
wheat prices seem to be matching the increase in the to the lag length, is preferred in recent studies. The
Brent and West Texas Intermediate prices. In addition null hypothesis of the KPSS stationarity test is the
to this, the agricultural and oil prices reached their reverse of the null hypothesis of the ADF and the PP
peaks in 2008 because of the dynamic relationships unit root tests (Basar and Temurlenk 2007). Thus,
between agricultural and oil prices. the hypothesis to be built for the KPSS test means
Following Zhang et al. (2010), Nazlioglu (2011), that the null hypothesis time series is stationary and
Nazlioglu and Soytas (2012) and Gozgor and Kablamaci on the other hand the alternative hypothesis means
(2014), the agricultural commodity prices are the de- that the time series is not stationary (Sevuktekin and
pendent variable in our empirical analysis, because Nargelecekenler 2005).
the agricultural commodity prices increase frequently, If the series of the variables are both integrated of
when the oil prices rise. the same order, the presence of a long-term relation-
Our empirical models are specified as follows: ship (co-integration vector) between each agricultural
commodity and the world oil prices is investigated by
LN(CORN) t = β 0 + β 1 LN(BRENT) t + using the co-integration test developed by Johansen
+ β 2 LN(WTI) t + ε t (1) (1988; 1991) and Johansen and Juselius (1990). In the
case of the detection of a relation of co-integration
LN(SOYBEANS) t = β 0 + β 1 LN(BRENT) t +
that indicates the existence of a long-term relation
+ β 2 LN(WTI) t + ε t (2)
between the variables, the relations of the Granger
(1969) causality must be analysed by the means of the
LN(WHEAT) t = β 0 + β 1 LN(BRENT) t +
Vector Error Correction Model (VECM) and by the
+ β 2 LN(WTI) t + ε t (3)
means of the VAR approach if there is no relation of
where CORNt, SOYBEANSt and WHEATt are the corn co-integration (Chimobi and Igwe 2010).
price, soybeans price and wheat price, respectively.
BRENT and WTI are the Europe Brent Oil price
and the West Texas Intermediate price, respectively. EMPIRICAL FINDINGS
In order to investigate the short and long term rela-
tionships between the world oil prices (Europe Brent This section provides an insight into the time-
Spot Price and West Texas Intermediate Spot Price) series properties of the data obtained. Tables 3–5
and the agricultural commodity prices (wheat, corn show both the level and the first difference results
and soybeans), unit root tests are carried out in the of the natural logarithms of the agricultural com-
first instance in order to examine the stability series. modity and world oil prices. The null hypothesis for
Although there are different unit root tests that inves- the ADF and PP is that the variable has a unit root
tigate the stability of the series, the one which is most and is not stationary and the null hypothesis for the
frequently used is the Augmented Dickey Fuller (ADF) KPSS is that the variable has not a unit root and is
test. According to that test, the first difference of the stationary. As it can be seen from the Tables 2–4,
variable is that it is regressed onto its own delayed all variables are non-stationary in level-I(0) for the
value and the delayed values of its first differences and ADF, PP and KPSS unit root tests. When results of
hence it is tested whether the ADF coefficient is zero the ADF, PP and KPSS unit root test are examined
or not (Dickey and Fuller 1979). Another unit root after their performance by taking the differences of

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Table 3. Augmented Dickey Fuller (ADF) Unit Root Test Results

ADF (Level) ADF (First Difference)

Variable
Constant Trend-Intercept Constant Trend-Intercept
–1.047 [1] –3.270 [1] –12.949 [0]*** –12.939 [0]***
L(Brent)
(0.736) (0.073) (0.000) (0.000)
–1.110 [1] –3.430 [1]** –12.634 [0]*** –12.625 [0]***
L(WTI)
(0.712) (0.049) (0.000) (0.000)
–1.577 [1] –2.484 [1] –12.666 [0]*** –12.651 [0]***
L(Corn)
(0.492) (0.335) (0.000) (0.000)
–1.347 [1] –2.511 [1] –12.615 [0]*** –12.614 [0]***
L(Soybeans)
(0.608) (0.322) (0.000) (0.000)
–1.582 [1] –2.950 [1] –12.993 [0]*** –12.997 [0]***
L(Wheat)
(0.490) (0.148) (0.000) (0.000)
Critical Value 1% –3.452 –3.989 –3.452 –3.989
Critical Value 5% –2.871 –3.425 –2.871 –3.425

Notes: MacKinnon (1996) one-sided p-values. The optimal lag-length for the test was selected by Schwarz Information Criterion
** and *** denote statistical significance at 5% and 1% level of significance respectively

series from first degree, it is observed that all vari- a result of the unconstrained VAR analysis. Based
ables are not I(0) stationary in their levels and they on the results reported in Table 6, the study selects
become stationary when their first degree differences the optimal lag to be 2 (two), according to the Final
I(1) are taken. Findings found by the ADF unit root Prediction Error, the Akaike Information Criterion,
test are also supported by the results of the PP test. the Schwarz Information Criterion and the, Hannan-
Findings obtained from the KPSS test are consistent Quinn Information Criterion. Table 7 shows the
with the results of the ADF and PP tests. According results of the Johansen co-integration test performed
to these results, as all variables are integrated from to examine the presence of a co-integration relation-
the first degree I(1), it is concluded that there can be ship between the agricultural commodity prices and
a co-integrated relationship between the variables. the world oil prices. As demonstrated by the results
Therefore, it will be possible to look into the matter, of the Johansen co-integration test are given in Table
whether there is a long-term relationship between 6, it is found that the agricultural commodity prices
agricultural commodity and the world oil prices. and world oil prices do not have any co-integration
The optimum lag length for the Johansen co- relationships both according to the trace and the
integration test is determined on the basis of the maximum eigen value statistical results (H 0: r = 0
minimum information criterions value obtained as not rejected at 5% and 1% levels).

Table 4. Phillips-Perron (PP) Unit Root Test Results

PP (Level) PP (First Difference)

Variable
Constant Trend–Intercept Constant Trend–Intercept
–0.705 [8] –3.081 [5] –12.501 [11]*** –12.482 [12]***
L(Brent)
(0.842) (0112) (0.000) (0.000)
–0.818 [7] –3.172 [5] –12.133 [11]*** –12.115 [11]***
L(WTI)
(0.812) (0.092) (0.000) (0.000)
–1.448 [3] –2.327 [3] –12.782 [4]*** –12.765 [4]***
L(Corn)
(0.558) (0.417) (0.000) (0.000)
–1.034 [3] –2.244 [3] –12.544 [4]*** –12.539 [4]***
L(Soybeans)
(0.715) (0.462) (0.000) (0.000)
–1.438 [6] –2.840 [6] –12.920 [3]*** –12.923 [3]***
L(Wheat)
(0.563) (0.184) (0.000) (0.000)
Critical Value 1% –3.481 –4.030 –3.452 –3.989
Critical Value 5% –2.883 –3.444 –2.871 –3.425

Notes: MacKinnon (1996) one-sided p-values. The optimal lag-length for the test was selected by Newey-West using Bartlett Kernel
***denotes statistical significance at 1% level of significance

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doi: 10.17221/231/2014-AGRICECON

Table 5. Kwiatkowski-Phillips-Schmidt-Shin (KPSS) Unit Root Test Results

KPSS (Level) KPSS (First Difference)

Variable
Constant Trend-Intercept Constant Trend-Intercept
L(Brent) 1.811 [14]*** 0.318 [14]*** 0.089 [8] 0.040 [8]
L(WTI) 1.820 [14]*** 0.295 [14]*** 0.082 [8] 0.039 [8]
L(Corn) 1.170 [14]*** 0.359 [14]*** 0.068 [2] 0.043 [2]
L(Soybeans) 1.247 [14]*** 0.365 [14]*** 0.089 [2] 0.030 [2]
L(Wheat) 1.260 [14]*** 0.295 [14]*** 0.087 [6] 0.027 [5]
Critical Value 1% 0.739 0.216 0.739 0.216
Critical Value 5% 0.463 0.146 0.463 0.146

Notes: Kwiatkowski-Phillips-Schmidt-Shin test statistic (1992, Table 1). The optimal lag-length for the test was se-
lected by Newey-West using Bartlett Kernel
***denotes statistical significance at 1% level of significance

Table 8 presents the results of the Granger causality causality relationships from the world oil prices to the
test results between the agricultural commodity prices agricultural commodity prices. The results indicate
and the world oil prices and there are uni-directional that: the Brent causes corn, soybeans and wheat at

Table 6. Lag Length Selection Criteria

LM-Stat.
Variable Lag Log LR FPE AIC SC HQ
(Prob.)
L(Brent) 1.111
2 720.643 45.054 2.18E–05* –5.057* –4.928* –5.006*
L(Corn) (0.892)
L(Brent) 3.980
2 734.024 47.729 1.98E–05* –5.153* –5.023* –5.101*
L(Soybeans) (0.408)
L(Brent) 2.301
2 701.449 36.042 2.50E–05* –4.921* –4.791* –4.869*
L(Wheat) (0.680)
L(WTI) 2.095
2 740.357 48.816 1.89E–05* –5.198* –5.068* –5.146*
L(Corn) (0.718)
L(WTI) 4.992
2 752.521 50.479 1.74E–05* –5.284* –5.155* –5.232*
L(Soybeans) (0.288)
L(WTI) 2.845
2 720.540 40.220* 2.18E–05* –5.057* –4.927* –5.005*
L(Wheat) (0.583)

LR: sequential modified LR test statistic (each test at the 5% level), FPE: Final Prediction Error, AIC: Akaike Informa-
tion Criterion, SC: Schwarz Information Criterion, HQ: Hannan-Quinn Information Criterion
*indicates lag order selected by the criterion

Table 7. Johansen Co-integration Test Results

Variable Hypothesis Eigenvalue Trace Statistic Prob.* Max-Eigen Statistic Prob.*

L(Brent) H 0: r = 0 0.040 12.758 0.124 11.924 0.113
L(Corn) [2] H 1: r ≤ 1 0.002 0.833 0.361 0.833 0.361
L(Brent) H 0: r = 0 0.029 9.753 0.300 8.813 0.302
L(Soybeans) [2] H 1: r ≤ 1 0.003 0.939 0.332 0.939 0.332
L(Brent) H 0: r = 0 0.043 13.524 0.096 12.988 0.078
L(Wheat) [2] H 1: r ≤ 1 0.001 0.536 0.464 0.536 0.464
L(WTI) H 0: r = 0 0.037 12.243 0.145 11.150 0.146
L(Corn) [2] H 1: r ≤ 1 0.003 1.093 0.295 1.093 0.295
L(WTI) H 0: r = 0 0.028 9.448 0.325 8.329 0.346
L(Soybeans) [2] H 1: r ≤ 1 0.003 1.119 0.290 1.119 0.290
L(WTI) H 0: r = 0 0.041 13.111 0.110 12.380 0.097
L(Wheat) [2] H 1: r ≤ 1 0.002 0.730 0.392 0.730 0.392

* denotes MacKinnon-Haug-Michelis (1999) p-values [ ] Lag Length

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Table 8. VAR Granger Causality/Block Exogeneity Wald Test Results

Null Hypothesis Chi-sq Prob. df Causal Relation

L(Brent) does not granger cause L(Corn) 11.485 0.003*** 2 L(Brent) → L(Corn)
L(Brent) does not granger cause L(Soybeans) 9.249 0.009*** 2 L(Brent) → L(Soybeans)
L(Brent) does not granger cause L(Wheat) 9.831 0.007*** 2 L(Brent) → L(Wheat)
L(WTI) does not granger cause L(Corn) 10.074 0.006*** 2 L(WTI) → L(Corn)
L(WTI) does not granger cause L(Soybeans) 7.617 0.022** 2 L(WTI) → L(Soybeans)
L(WTI) does not granger cause L(Wheat) 8.862 0.011** 2 L(WTI) → L(Wheat)
L(Corn) does not granger cause L(Brent) 2.821 0.243 2 No causal relation
L(Soybeans) does not granger cause L(Brent) 3.292 0.192 2 No causal relation
L(Wheat) does not granger cause L(Brent) 1.293 0.523 2 No causal relation
L(Corn) does not granger cause L(WTI) 2.238 0.326 2 No causal relation
L(Soybeans) does not granger cause L(WTI) 2.586 0.274 2 No causal relation
L(Wheat) does not granger cause L(WTI) 1.662 0.435 2 No causal relation

** and *** denote statistical significance at 5% and 1% level of significance respectively

1% significance level but not vice-versa. In the same to the world oil prices, in other words, these findings
manner, the WTI causes corn, soybeans and wheat support that the world oil prices do not respond to
at 1%, 5% and 5% significance level, respectively, but the agricultural commodity prices (Zhang et al. 2010;
not vice versa. Vasciaveo 2013).
Considering the findings, it can be expressed that
the policy makers must take into account the effects
CONCLUSION and changes of the world oil prices on the agricultural
commodity prices and policies. And also for the global
This study investigates the short and long term investors, trading on the global basis can predict
relationships between the world oil prices (Europe the agricultural commodity prices by watching the
Brent Spot Price and West Texas Intermediate Spot changes/fluctuations in the oil prices.
Price) and the agricultural commodity prices (Wheat,
Corn and Soybeans) based upon the data set covering
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Contact address:

Ayhan Kapusuzoglu, Yildirim Beyazit University – Business School, Department of Banking and Finance,
Cinnah Cad. No. 16, 06690, Cankaya – Ankara, Turkey
e-mail: [email protected]

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