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

Abstract

Objective: Estimating an econometric model regarding the dynamics of mexican arabica coffee export prices with the joint influence of colombian arabica spot prices and coffee futures from the New York Stock Exchange.

Design/methodology/approach: Were aplied unit root test, cointegration análisis, estimate a vector error correction model, Granger´s causality tests, impulse response function analysis and variance decomposition análisis.    

Results: The results show the relationships among prices of Colombian and mild arabica coffees have in the long term under the temporal control of futures prices.

Limitations on study/implications: The estimated model can be expanded by incorporating financial, climatic, and policy variables; however, the lack of availability of information with the same periodicity makes it difficult to develop more robust models.

Findings/conclusions: The inherent volatility of coffee prices was corroborated, suggesting the importance of understanding and properly modeling these market fluctuations. This study provides a deeper insight into the interconnectedness between the various determinants of coffee markets, and highlights the need for effective risk management strategies for participants in that market.