Price Transmission between the International Market of Soybean Chicago (CBOT) and the Uruguayan Domestic Market

Abstract

This study analyse the dynamics of price transmission between the international soybean market of the Chicago Board of Trade (CBOT) and Uruguay's domestic market, with a focus on determining the existence and nature of a long-term equilibrium relationship. Additionally, it examines the causal interactions and short-term relationships between these markets. Employing a price transmission econometric approach. The research first utilizes the Augmented Dickey-Fuller test (ADF) with structural breaks to assess stationarity within the time series. Subsequently, the Johansen Cointegration test is applied to ascertain the presence of long-term relationship among the variables. The study advances by implementing the Granger causality test to elucidate the directionality of causation and employs the Vector Error Correction Model (VECM) to dissect the short-term dynamics of the relationship. The period under study spans from January 2010 through December 2016. The analysis reveals a cointegration between the Uruguayan and Chicago markets, signifying a long-term relationship. It is observed that price alterations in Chicago impact the Uruguayan market but not vice versa, establishing a unidirectional causality. The VECM indicates that after a perturbation, the Uruguayan market adjusts towards equilibrium at a rate of 32% per month, signalling a return to equilibrium within approximately three months. These findings corroborate the Law of One Price in the long run, whereby the markets in question tend to converge to an equilibrium price. The study substantiates Uruguay's position as a "price taker," underlining its substantial reliance on international markets and confirming the efficiency of its domestic soybean market in terms of price transmission mechanisms.

El presente estudio analiza la transmisión de precios entre el mercado internacional de soja de la Bolsa de Chicago (CBOT) y el mercado doméstico uruguayo para el período enero 2010-diciembre 2016. Mediante pruebas ADF con quiebres estructurales, cointegración de Johansen, causalidad de Granger y un modelo VECM, se confirma una relación de largo plazo con causalidad unidireccional Chicago-Uruguay y una velocidad de ajuste del 32% mensual (retorno al equilibrio en ~3 meses), validando la Ley del Precio Único y el rol de Uruguay como precio-aceptante en el mercado global de soja.