Is price volatility on a downward path?

“2024 Prospects for EU Agricultural Markets”
European Commission
Brussels
December 5, 2014
Despite recent declines, most prices are still high
(MUV-deflated indices, 2010 = 100)
160
Agriculture
120
80
Metals
40
Energy
1960
1964
1968
1972
Source: World Bank.
Note: 2014 figures as of November 2014
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
Three characteristics of post-2005
commodity price behavior


Levels: Despite recent declines, most real
commodity prices are high by historical standards.
Volatility: It increased during the early phase of the
price boom. But, views on whether is has declined
differ:
o
o

Statisticians argue that it has.
Producers, consumers, and politicians say otherwise.
Comovement: Price comovement increased
considerably after 2005. It has now reverted to its
historical average, even after considering recent
price weakness across most commodity sectors.
Prices appeared to have stabilized
(Nominal indices, 2010 = 100)
180
160
Agriculture
Metals
Energy
140
120
100
80
60
40
Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14
Source: World Bank
Note: Last observation is November 2014
Price volatility of crude oil, copper, wheat
percent
4.5
4.0
Oil (Brent)
3.5
3.0
Wheat
2.5
2.0
1.5
1.0
Copper
0.5
0.0
1999
2001
2004
2007
2009
2012
2014
Source: ICE, CME, and World Bank calculations
Note: Volatility is measured as the standard deviation of daily returns and it is based on data from 1/1/1999 to 12/1/2014,
presented as 250-day moving average.
“Excess” Volatility?
(Number of commodities whose volatility was above 25%)
18
17
The elevated price volatility
during 2008-09 is associated
with the financial crisis
15
14
12
9
8
6
5
5
4
3
3
3
2
1
0
1
2
1
1
0
1
0
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: ICE, CME, and World Bank calculations
Note: The averages apply to each commodity during the entire sample and have been calculated separately for each calendar
year.
Maize year-to-year (monthly) nominal price
change, absolute terms
US$/mt
180
Period average: $59/mt
150
120
90
60
30
0
Jan-98
Period average: $13/mt
Jul-99
Jan-01
Jul-02
Source: World Bank
Note: Last observation is November 2014
Jan-04
Jul-05
Jan-07
Jul-08
Jan-10
Jul-11
Jan-13
Jul-14
Wheat year-to-year (monthly) nominal price
change, absolute terms
US$/mt
250
Period average: $75/mt
200
150
100
Period average: $21/mt
50
0
Jan-98
Jul-99
Jan-01
Jul-02
Source: World Bank
Note: Last observation is November 2014
Jan-04
Jul-05
Jan-07
Jul-08
Jan-10
Jul-11
Jan-13
Jul-14
EU butter year-to-year (monthly) nominal
price change, absolute terms
US$/mt
4 200
3 150
Period average: $1,406/mt
2 100
1 050
0
Jan-02
Period average is $247
Jul-03
Jan-05
Source: World Bank
Note: Last observation is September 2014
Jul-06
Jan-08
Jul-09
Jan-11
Jul-12
Jan-14
Price comovement has returned to
historical norms
Share of prices moving in the same direction
0.55
0.50
0.45
0.40
0.35
0.30
0.25
0.20
1998
1999
2001
2002
2004
2006
2007
2009
2010
2012
2013
Source: World Bank
Note: Last observation is November 2014. The index shoes directional comovement, i.e., how many price move in the same
direction. It is based on daily data of 18 commodities, presented as a 250-moving average.
Energy matters a lot to agriculture
Share of energy component in 2007, percent
Manufacture
WORLD
Agriculture
HIGH INCOME
DEVELOPING
SSA
US
Canada
EU-12
China
Brazil
India
Turkey
0
3
6
Source: Author’s calculations based on the GTAP database
9
12
15
18
The World Bank’s latest monthly commodity price
update was published on December 3, 2004; the
next update will be published on January 5, 2014.
The latest quarterly market analysis and price
forecasts was published on October 16, 2014. The
next update will be made available on January 22,
2015.
www.worldbank.org/commodities

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