Is there a causal relationship between grains futures and agricultural equities?
Is there a causal relationship between grains futures and agricultural equities?

Summary/Abstract: This study focuses on the causal relationship between grains futures and agricultural companies quotations over the period of January of 1971 to December of 2015. The grains futures index has been created with corn, wheat and soybean future contracts using world-production weighted methodology of daily prices. The daily equity prices of the dominant agricultural companies that are directly or indirectly related to the grains sector with each representing varied focus areas, like oil seeds processing, fertilizers, biotechnology products and packaged foods, have been used for the analysis. To check the relationship between grains futures index and agricultural companies, Toda and Yamamoto (1995) procedure has been applied. The empirical analysis has shown that some agricultural equities showed no or only partial interaction with the grains futures index, while others showed strong interaction with such index. The agricultural companies that are highly focused on the grains, food processing, fertilizers and packaged foods without diversifying themselves to distinct sectors like financial or insurance services showed stronger causality with the grains futures index. The results suggest that individual investors can get diversification benefits of investing in the grains sector-related agricultural companies by grouping them with identification of their like-wise major services and products in narrow based approach and not grouping the complete agricultural sector from a broader perspective using standard industrial classification (SIC) codes

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