Dynamic correlation between crude oil and agricultural futures markets

ABSTRACT

In recent years, the relationship between agricultural commodities and crude oil has become increasingly close with the promotion of biofuel policies. This study examines the dynamic correlation between global crude oil futures and seven agricultural commodity futures by applying the consistent dynamic conditional correlation and dynamic equicorrelation models. The empirical results show that the dynamic correlation between the global crude oil futures market and China's agricultural futures market is weak compared to the global agricultural futures market. In particular, soybean oil has the strongest correlation with crude oil, while Dalian Commodity Exchange (DCE) corn and Zhengzhou Commodity Exchange wheat have the weakest correlation with crude oil. There is an indirect linkage between crude oil futures and DCE soybean meal and DCE soybean oil. Moreover, the dynamic correlation between crude oil and agricultural commodities increased during the financial crisis, the novel coronavirus (COVID-19) epidemic, and the crude oil crash crisis. Brent crude oil has a stronger co-movement with China's agricultural commodities than West Texas Intermediate crude oil and can better hedge the risk of agricultural commodities. The findings of this study provide some insights into the contagion risk management of crude oil futures and agricultural futures markets. © 2022 John Wiley & Sons Ltd.