Market integration and price forecasting of selected agricultural commodities

Abstract

newlinePurpose In line with the on-going global and domestic reforms in agriculture and allied sectors, the Indian Government is reducing its direct market intervention and encouraging private participation based on market forces. This has led to increased exposure of agricultural produce to price and other market risks, which consequently emphasize the importance of futures markets for price discovery and price risk management. The purpose of this paper is to analyse the causal relationship between agricultural commodities among Indian states for selected agricultural commodities and forecasting commodity price for Odisha. newlineDesign/methodology/approach Market integration and price forecasting model for 4 agricultural commodities are built and the forecasting has been done for the year 2019 by using Johansen s Cointegration analysis, Granger causality tests and ARIMA modelling. Unit root test procedures such as Augmented Dickey-Fuller and non-parametric Phillips-Perron were initially applied to examine whether the price data series are stationary or not. The hypothesis has been tested using econometric software packages like R and Eviews. newlineFindings Results show that Cointegration exists significantly among Indian agricultural commodity market prices (for selected agricultural commodities). There exists causal relationship among markets i.e. price of other states affect forecast price of Odisha. Forecasting models for Cotton, Turmeric, Greengram and groundnut are selected with the help of AIC, SC, AICc, BIC criterion. Price forecasting result is found for the year 2019 and validated with MAPE and RMSE criterion and found significant. newlinePractical implications The results of this study are useful for various stakeholders active in Agricultural commodities markets such as producers, traders, commission agents, commodity Exchange participants, regulators and policy makers. newlineOriginality/value There are very few studies that have explored the efficiency of the commodity futures market in India in a detailed manner, especially at individual commodity level with price forecasting. newlineKeywords: Market integration and Causality, Price forecasting, Seasonality, Validation