Energy and crop price cycles before and after the global financial crisis: A new approach

Abstract

Using the newly developed Hamilton filter, we decompose prices of three primary energy sources (crude oil, coal and natural gas) and five significant crops (corn, palm oil, rice, soybean and wheat) to isolate their cyclical components. Then, we apply time-difference analyses to study their co-movement. Analysing 15 energy price–crop price pairs over two periods, 1990–2009 and 2010–2020, we find that the correlations between coal and crop prices have weakened significantly during the 2010s, while correlations of crude oil and natural gas prices with crop prices have strengthened. Until 2009, crude oil and natural gas prices led crop prices, whereas during the 2010s they lagged crop prices. We conclude that the global financial crisis marked a pivotal shift in the associations between energy and crop prices. The results underscore the importance of examining the associations between specific crop and energy prices rather than aggregated indices; furthermore, using crude oil as a proxy for energy prices is not suitable—an aggregated approach that presumes the predominance of one energy source apropos different crops may yield incorrect results.