Coffee prices: Mexican, Colombian and future quotes, a statistical cointegration analysis

Resumen

Objective: to estimate an econometric model for exports price dynamics of Mexican Arabica coffee with the joint influence of Colombian Arabica spot prices, and Arabica coffee futures from the New York Stock Exchange.

Design/ Methodology/ Approach: we applied unit root tests, cointegration analysis, estimation of a vector model with error correction, Granger’s sense causality tests, impulse-response function analysis, and variance decomposition analysis.

Results: results made evident the dynamic relationship between the long-term prices of Colombian Arabica and Mild Arabica under the temporary control of futures quotes.

Limitations/ Implications of the study: the estimated model can be expanded by incorporating financial, climate, and policy variables. However, the lack of information available with the same periodicity makes it difficult to develop more robust models.

Findings/ Conclusions: the volatility inherent in coffee prices was corroborated, which suggests the importance of properly understanding and modeling these fluctuations in the market. This study provides a deeper insight into the interconnectedness among the various determinants of the coffee market, highlighting the need for effective risk management strategies for participants in this market.