Linkage of grain prices in Ukraine with the world crude oil prices

Abstract

Over the past decade, we have observed an increased use of renewable energy sources based on agricultural commodities. It is stimulated by a wide range of political tools in developed countries and leads to the linkage of agricultural markets with energy markets even in the countries which do not have own peculiar policies regarding renewable energy. In this context, the purpose of the paper is to assess the linkage between corn and wheat prices in Ukraine and Brent crude oil prices. The price analysis was carried out on the basis of monthly data covering the period between January 2001 and December 2018 with the use of ARDL-ECM models and bound tests approach. The obtained results indicate time varying relationships between the Ukrainian grain prices and the world crude oil prices. The strongest price linkage was observed between 2008 and 2013, a period characterised by a substantial increase in bioethanol production, low grains inventory levels and high crude oil prices. It should be noted that reaching planned mandatory blending levels in most countries promoting biofuel policy and relatively low crude oil prices does not constitute a motivation to increase the use of cereals for biofuel production. The increase of stocks in the world grain markets also contributes to reducing the strength of price connections.