As Tomato price; Corn “crazy” price exists

Tomato price shows more volatility than other commodities. In fact, central banks in the short run don’t affect its behavior as supply conditions do, and in México, it eventually threat the central bank’s inflation target (due its high weigh in the consumer prices index; the estimator of inflation); phenomenon named as supply price shocks, very usual in prices of vegetal products.

Even though tomatoes market doesn’t have a future market as other markets have, it shows the kind of volatility as grain markets with different timing and regularity given its characteristics such as yield variability, meteorological sensibility, logistics circumstances and size of the market. In the world, Tomato market is not an unique integrate market. Its perishability imposes market constraints; it’s not easy export Mexican tomatoes to Argentina or Europe because it only exists weeks after its production. Therefore in the world we see a set of markets with its own behavior. For instance, a single test to measure the long-run relationship between tomatoes prices in Mexico and Chile (co-integration) resulted that there are not relationship (for results of Johansen co integration test, feel free to ask me for the information).

The prices of Tomates in México have also a seasonal behavior. The harvesting period in Mexico is during the second half of the year, between August and December, so the output is concentrated mainly in the period February-August (the season of low prices). However it has a stochastic seasonal behavior, because the output is conditioned principally to the degree of goodness of the weather, previous price, and price behavior of productive substitutes.

The cyclical behavior showed by grain market is similar to tomato markets but more ample. It is because its ability to be stocked, low costs of transportation and negative crops that can be compensated by positive crops in many parts of the world. In fact, in the last decades we have observed complete cycles of prices; with a dynamic pattern similar to business cycle.

We are not well accustomed to high prices phases, as we are not accustomed to recession phases. High prices in commodities could stay for long time given that its fundamentals had changed (higher energy and labor prices –the agricultural activity intensive in both economic factors), and the prospects of eased demand has not changed yet (even with financial turbulence the prospects of food demand for developing countries is high). We can’t blame financial markets as principal factor behind high prices, there are fundamental reasons. For example: oil reserves located in regions with geopolitics tensions and extracted by government companies with non market behavior; and agricultural prices controls, affecting the prices as prime incentive in any economy.

Graph Annexes