Volatility in Cereal Prices: Intra- Versus Inter-annual Volatility

Intra-annual (within crop year) price volatility and inter-annual (between crop years) price volatility are measured for wheat, maize, rice, barley, oats and rye. A set of explanatory variables is used in a pooled regression to explain variations in these price volatilities. With low cereal stocks, supply (yield) shocks (defined here as volatilities, as for the price volatilities) mostly influence inter-annual volatility while other influential factors are the crude oil price and exchange rate. Cereal demand and interest rate shocks combined with low stocks affect intra-annual volatility, while other explanatory factors include exchange rate and crude oil price shocks. The derivatives market activity appears to have no significant effect on either intra-or inter-annual volatility. In contrast, large cereal stocks and a well-functioning international cereal market reduce the effects of shocks in the explanatory variables on both intra-and inter-annual volatilities.