The Impact of Brazil on Global Grain Dynamics: A Study on Cross-Market Volatility Spillovers

TL;DR

This study investigates how Brazil's rise as a major soybean and corn producer has increased volatility spillovers between U.S. and Brazilian markets, especially after the adoption of double cropping practices.

Contribution

It quantifies volatility spillover ratios between U.S. and Brazilian markets and reveals how these spillovers have intensified and reversed direction with agricultural practice changes.

Findings

Volatility spillovers increased after Brazil adopted double cropping.

The direction of spillovers flipped from U.S. to Brazil post-double cropping.

Market linkages between U.S. and Brazil strengthened over time.

Abstract

Brazil rose as a global powerhouse producer of soybeans and corn over the past 15 years has fundamentally changed global markets in these commodities. This is arguably due to the development of varieties of soybean and corn adapted to climates within Brazil, allowing farmers to double-crop corn after soybeans in the same year. Corn and soybean market participants increasingly look to Brazil for fundamental price information, and studies have shown that the two markets have become cointegrated. However little is known about how much volatility from each market spills over to the other. In this article we measure volatility spillover ratios between U.S. and Brazilian first crop corn, second crop corn, and soybeans. We find that linkages between the two countries increased after double cropping corn after soybeans expanded, volatility spillover magnitudes expanded, and the direction of volatility spillovers flipped from U.S. volatility spilling over to Brazil before double cropping, to Brazil spilling over to U.S. after double cropping.