Corn Price Behavior – Volatility transmission during the boom on futures Markets

Since 2000 a number of factors impacted agricultural markets drastically. Among these are structural changes in global demand and repeated supply constraints that supported the observed positive development of agricultural prices. Given the increasingly interdependent global markets, the question arises of in how far an isolated view of a single market, when analysing price volatility, is sufficient? The paper is a contribution to the debate on the recent commodity price bubble and the relationship among commodity futures markets for agricultural raw materials. More particularly, the transmission of price volatility between commodity future markets is analysed. The background question is whether and to what extent the volatility of agricultural commodity prices at different market places have been transferred during the drastic price changes of 2008. In this analysis the volatility of the maize future price at three different commodity futures exchange is modelled as a multivariate GARCH - process. By doing so, interactions between stock markets in different venues are incorporated. The results of the econometric analysis are discussed against the background of the developments in agricultural and biofuel policy.