Resources Policy 73 (2021) 102236

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Oil prices and agricultural commodity markets: Evidence from pre and
during COVID-19 outbreak
Ngo Thai Hung
Faculty of Economics and Law, University of Finance-Marketing, Ho Chi Minh City,Viet Nam

A R T I C L E I N F O A B S T R A C T

JEL classification: This paper represents an analysis of the spillover effects and time-frequency connectedness between crude oil
C11 prices and agricultural commodity markets using both the spillover index of Diebold and Yilmaz (2012) and the
C52 wavelet coherence model to evaluate whether the time-varying return spillover index exhibited the intensity and
Q41
direction of transmission during the Covid-19 outbreak. Overall, the current results shed light on that in com­
Keywords: parison with the pre-Covid-19 period, and the return spillover is more apparent during the Covid-19 crisis.
COVID-19
However, levels of the intensity of this relationship vary through the period of research, with several intervals
Agricultural commodity
Crude oil
witnessing both negative and positive interactions. Further, our findings indicate significant heterogeneity
Wavelet coherence among agriculture commodity markets in the degree of spillover to crude oil prices over time, amplifying our
Spillover index understanding of the economic channels through which the agriculture commodity markets are correlated. More
JEL Clarifications: C11 importantly, there exist significant dependent patterns about the information spillovers across the crude oil and
C52 agriculture commodity markets might provide prominent implications for portfolio managers, investors, and
Q41 government agencies.

1. Introduction The results of the paper may help us rethink the contagion phenomenon
and establish novel approaches for evaluating this complex and un­
The Covid-19 outbreak pandemics is a human tragedy, and the global precedented event.
economy faced unprecedented shock caused by the rapid spread of the Agricultural commodity markets and crude oil prices are funda­
deadly Covid-19. It has a growing influence on high scale disruption to mental determinants of the global economic performance (Su et al.,
businesses and the lives of millions of people. Covid-19 has created 2019). More importantly, crude oil prices, as a crucial commodity in the
remarkable uncertainty, which has impacted tourism, travel, hospital­ world, have a considerable impact on a wide range of economic sectors
ity, supply chains, consumption, production, operations financial stress in terms of direct and indirect transmissions (Vo et al., 2019; Shiferaw,
and product prices (Chang et al., 2020). The financial markets stand out 2019). For individual economies, agricultural commodity prices have
as one of the more apparent channels reacting the effects of the remarkable welfare and policy implications (Melichar and Atems,
pandemic on the economy (Sharif et al., 2020). The community of 2019). More precisely, variations in rates of agricultural commodities
finance and economics scholars instantly reacted to the urgent need for involve an adjustment in crude oil prices, and crude oil prices is a sig­
research on the impacts of the Covid-19 outbreak (Goodell, 2020). nificant input for transportation and processing in the agricultural sec­
Furthermore, the novel coronavirus has started to impact the real tors (Su et al., 2019). The increased agricultural commodity prices
economy already, creating a crash on financial and commodity markets. during the Covid-19 outbreak may expose manufacturers and consumers
It is challenging to forecast the scale of the economic consequences of to additional risk, giving rise to significant stress, especially in
the Covid-19 crisis, and we believe that existing literature already food-insecure, developing countries. Therefore, policymakers must un­
consists of several answers and methodologies that are able to employ to derstand the connectedness between the two sectors better to take on a
capture the economic effects of the current crisis (Goodell, 2020). In this practical set of policy instruments to maintain the prices stable.
article, we attempt to analyze the dynamic spillovers and The current Covid-19 crisis, crude oil price plummeted dramatically
time-frequency nexus between crude oil prices and agricultural com­ to $1.15 per barrel in March 2020. As a result, the complicated behavior
modity markets in the pre-and during the Covid-19 outbreak periods. of crude oil prices has brought significant influence to agricultural

E-mail address: [email protected].

https://doi.org/10.1016/j.resourpol.2021.102236
Received 26 May 2020; Received in revised form 17 April 2021; Accepted 6 July 2021
Available online 10 July 2021
0301-4207/© 2021 Elsevier Ltd. All rights reserved.
N.T. Hung Resources Policy 73 (2021) 102236

commodity prices due to the restrictions of production and trans­ Covid-19 pandemic era. Furthermore, there is very little empirical
portation. In addition, the prices of primary agricultural commodities research that looks into directional spillovers and time-frequency
increased in the pre-Covid-19 period and then witnessed a significant interdependence between crude oil prices and agricultural commodity
downward trend during the Covid-19 outbreak (see Fig. 2). The fluctu­ markets when oil prices vary through the period of the Covid-19
ations of agricultural commodity prices have put pressure on the outbreak. More explicitly, our main research questions are: What is
household sector, exacerbated global hunger problems, and posing a the contribution of oil price changes in connection with international
severe policy challenge (Su et al., 2019). Taking into consideration the economic activity to agricultural commodity price changes? Do agri­
structural changes induced by the Covid-19 outbreak, it is crucial to cultural commodity prices respond to oil market activities in the pre and
examine the time-frequency and dynamic connectedness between crude during the Covid-19 pandemic era? These problems have not been
oil prices and agricultural commodity markets, which may provide tackled in the literature.
important implications for policy adjustment based on time-varying The remainder of this paper is organized as follows. Section 2 pro­
market conditions. vides the literature review on the oil-agricultural commodity linkage.
The core focus of the current study is to employ both the spillover Section 3 represents the data and methodologies. Section 4 provides the
index of Diebold and Yilmaz (2012) and the wavelet coherence ap­ empirical findings, and Section 5 concludes and advises the policy
proaches to investigate the association across crude oil prices and implications.
agricultural commodity markets in the pre and during the Covid-19
pandemic era. Financial commodity markets are known to have fluctu­ 2. Literature review
ations not only frequencies but also at different time horizons, especially
in the Covid-19 crisis period. Using wavelets allows estimating coher­ Numerous articles have investigated the contagion effect in inter­
ence and connectedness in both short and long run horizons, which is national commodity markets. In recent years, there have been a large
crucial for policymakers and investors that seek for series degree of number of studies concentrating on the interrelatedness between crude
dependence (Madaleno and Pinho, 2014; Dahir et al., 2018; Hung, oil and agricultural commodity markets. In general, most of the previous
2020c). Besides, we apply the spillover index of Diebold and Yilmaz studies focused on two strands: price-level connectedness (Vo et al.,
(2012) to measure the direction of spillovers across crude oil prices and 2019; Taghizadeh-Hesary et al., 2019; Shiferaw, 2019; Su et al., 2019;
agricultural commodity markets. The main advantage of this method is Pal and Mitra, 2019; Melichar and Atems, 2019; Cheng and Cao, 2019;Ž
that the spillover index captures the dynamic magnitude of return ivkov et al. 2019a; Živkov et al., 2019b; Tiwari et al., 2021; Kumar et al.,
spillovers through time, exploring the direction of spillovers (Kang et al., 2020; Mensi et al., 2017; Kumar et al., 2021) and volatility spillover
2019; Hung, 2020b). Therefore, the methodologies we use can support effects across the markets under examination (Lu et al., 2019; Fasanya
to exhume economic dynamic and time-frequency interactions across and Akinbowale, 2019; Guhathakurta et al., 2020; Kang et al., 2019;
variables under investigation that have not been apprehended so far. Chen et al., 2019; Tiwari et al., 2018; Albulescu et al., 2020; Kang et al.
Overall, we can evaluate the nexus for various short-, medium-, and 2019, 2019). The present study examines the price of the related mar­
long-term cycles by using the combination of these techniques. Put it kets in terms of connectedness and spillovers, and we will, therefore,
another way, if the short-term risk spillovers are higher than the me­ review several articles with respect to this topic in this section.
dium- and long-term horizons, it suggests that most of the investors The causal relationship between crude oil prices and agricultural
behave similarly at short-frequencies whilst they behave more hetero­ commodity markets has become a much-debated issue among academics
geneously in the medium- and long-term horizons when investing in (Su et al., 2019). There are mixed results in the prior papers. For
risky assets (Kang et al., 2019a). The spectral representation of variance example, Vo et al. (2019) examine the causal associations between
decompositions is useful in the current study because price volatilities agricultural products and oil markets. The study finds that the crude oil
on oil prices may generate interdependence with the agricultural mar­ prices play a prominent role in explaining variations in the prices and
ket, with different degrees of persistence. Specifically, these frameworks volatility of agricultural commodities. At the same time, Taghiza­
allow us to determine in what particular periods and investment hori­ deh-Hesary et al. (2019) confirm that agricultural food prices respond
zons the oil-agriculture causal associations are stronger because of in­ positively to any innovations from the crude oil market. Shiferaw (2019)
vestor’s heterogeneity towards multiple economic and financial events. supports the findings of Vo et al. (2019), but the author notices that the
More accurately, investors take part in the markets at various time ho­ relationship between the agricultural commodity and energy prices is
rizons that are signified by frequencies that span from seconds to many time-varying, which means that the prices of agricultural commodities
years since they have different expectations, investment objectives, and crude oil prices experience strong co-movement. In a similar
institutional constraints, risk profiles, and different levels of information fashion, Su et al. (2019) uncover that the dynamic, positive bidirectional
integration (Tiwari et al., 2018). As a result, economic and financial causality exists between crude oil and agricultural prices and provide
innovations can disseminate through markets leading to heterogeneous evidence that price spillover between two variables happens to agri­
frequency responses. In the same vein, market participants who believe cultural commodities. Pal and Mitra (2019) find a strong relationship
in short-run investment are worried about the market’s short-term between returns of crude oil and agricultural commodity markets.
performance and make their decisions based on psychological Melichar and Atems (2019) unveil asymmetric responses in agri­
behavior. This means that their reaction to shocks happens in the short cultural commodity prices to crude oil markets, and provide evidence of
term. At the same time, other market participants concentrate their heterogeneity after changes in US energy policy in 2016, with a strong
attention on the long-term market performance, so their reactions to correlation between crude oil and agricultural commodities prices.
external shocks are mostly materialized in the long run. In this regard, it Cheng and Cao (2019) confirm the fact that there is a nonlinear causal
seems reasonable to assume that the causal associations in price and association between crude oil and agricultural commodity markets.
volatility between agricultural commodity markets and global oil prices Živkov et al. (2019a) reveal strong spillover effect from crude oil to
can depend on the time scale. barley, corn and soybean in the longer time horizons. Moreover, the
Moreover, empirical examinations of dynamic linkage between authors also indicate that agricultural commodities are impacted by
crude oil prices and agricultural commodity markets have already been crude oil in the periods of increased market turbulence. In a similar
extended. Nevertheless, to the best of our knowledge, only a very limited fashion, Živkov et al. (2019b) shed light on the low coherency in the
body of work is devoted to the recent situation created by the COVID-19 short-run and high coherency in the long run between crude oil and
crisis (Sharif et al., 2020; Goodell, 2020; Akhtaruzzaman et al., 2020). agricultural commodity markets.
Our study fills this void in the literature by examining how the Existing literature has confirmed that there exist the price spillover
oil-agricultural commodity linkage changes in the pre and during the mechanisms between crude oil prices and agricultural commodity

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N.T. Hung Resources Policy 73 (2021) 102236

markets. Lu et al. (2019) investigate the nature and dynamics of vola­ 3.1. Spillover index approach
tility spillovers between crude oil prices and agricultural commodity
markets during the global financial crisis, and the results show that there Taking into consideration a covariance stationary Vector AutoRe­
∑
is a bidirectional volatility spillover between crude oil and agriculture gression (VAR) model of order p and N variables, xi = pi=1 φi xt− i + εi ,
∑
commodity markets in the crisis period. Specifically, the results indicate where ε ∼ (0, ) is a vector of independent and identically distributed
that crude oil and agricultural commodity markets become less inte­ distances. We can turn the VAR into a moving average (MA) represen­
∑
grated after the global financial crisis, the results in line with Peersman tation, that is,xt = ∞ i=0 Ai εt− i where N × N coefficient matrix Ai is ob­
et al. (2019). Fasanya and Akinbowale (2019) demonstrate evidence of tained by the recursive substitution, Ai = φ1 Ai− 1 + φ2 Ai− 2 + ⋯ + φp Ai− p ,
cross-market spillovers between the crude oil price and the main agri­ with A0 = In , which is an identity matrix of order n, and Ai = 0 for i < 0.
cultural commodity markets in Nigeria, which implies that agricultural The MA presentation can be employed to forecast the future with the H-
commodities render significant volatility spillovers. More importantly, step-ahead.
the directional spillover between oil prices and agricultural commod­ The H-step-ahead generalized forecast-error variance decomposition
ities is weak in comparison with the directional spillover that happens can be written as:
across agricultural commodity markets. Similarly, Guhathakurta et al.
(2020) examine the influence of crude oil price on the commodity σij
∑1 (
H−
′
e i Ah
∑ )2
ei
markets, and the results show the significance of connectivity between φgij (H) = H− h=0 (1)
oil and commodity markets demonstrating the nature and extent of such ∑1( ′ ∑ ′
)
ei Ah Ah ei
interrelations. Kang et al. (2019) indicate a bidirectional and asym­ h=0
metric relationship between crude oil and agricultural commodity ∑
markets at all various frequency bands. In the same vein, the where is the variance matrix of the error vector, σ ii is the standard
co-movement and asymmetric associations between crude oil and agri­ deviation of the error term for the ith equation, and ei is the selection
culture commodity prices have been examined by Chen et al. (2019). vector with 1 as the ith elements, and 0 otherwise.
They present his work that there is a positive interconnectedness be­ According to the properties of generalized VAR, we have
∑N g
tween the crude oil price and corn price, and this relationship is long-run = 1. Each entry of the variance decomposition matrix is
j=1 φij (H) ∕
equilibrium. normalized by the row sum as
In this study, we revisit the issue of the impacts of crude oil price
changes on agricultural commodity markets using both the spillover g θgij (H)
̃
θij = (2)
index of Diebold and Yilmaz (2012) and the wavelet coherence ap­ ∑
N
θgij (H)
proaches. However, none of the studies mentioned above centres on the j=1

current situation created by the Covid-19 crisis. Therefore, we fill in the

∑N ̃g ∑N ̃g
gap and give fresh insight into the impact of the Covid-19 crisis on the where j=1 θij (H) = 1 and. i,j=1 θij (H) = N
interdependence between crude oil prices and agricultural commodity Total volatility spillover index proposed by Diebold and Yilmaz
markets. (2012) is defined as
∑
N ∑
N
3. Methodology
g g
̃
θij (H) ̃
θij (H)
(3)
i,j=1,j∕
=i i,j=1,i∕
=j
Sg (H) = × 100 = × 100
In this article, the spillover index of Diebold and Yilmaz (2012) and ∑
N g N
̃
θij (H)
the wavelet coherence approaches have been employed. We briefly i,j=1

introduce the empirical methods used throughout the article in this

We can measure the directional volatility spillovers received by
section. Spillover index approach developed by Diebold and Yilmaz
market i from all other markets j as:
(2012) is also employed to capture the dynamic net directional spillover
effects across these series. The wavelet time-frequency domain ∑
N
̃g ∑
N
̃g
θij (H) θij (H)
framework allows for different forms of localization, especially
(4)
j=1,i∕
=j i,j=1,i∕
=j
addressing the non-stationary time series (Baruník et al., 2016). In Si.g (H) = N × 100 = × 100
∑ ̃g N
this way, we can examine the co-movements and lead-lag interplay θij (H)
j=1
between assets using pairwise plots of wavelet coherence.
Diebold and Yilmaz (2012) spillover index and the wavelet coher­ Similarly, we can calculate the directional spillovers transmitted by
ence approach are employed to understand the relationships between market i to all other markets j as:
time series. Compared with the existing literature, the most remarkable ∑
N g ∑
N g
advantage of these methods is that time-varying and directional. We ̃
θji (H) ̃
θji (H)
may assess the extent of information spillover across assets under ex­ (5)
j=1,i∕
=j i,j=1,i∕
=j
Si.g (H) = × 100 = × 100
∑
N N
amination at any particular date (Maghyereh et al., 2016; Hung, 2020b).
g
̃
θji (H)
In constant to the standard time-series frameworks that estimate the j=1

time-series in the time domain or frequency domain, the wavelet We can also obtain the net volatility spillover for each market by
coherence technique explores the time and frequency elements of the calculating the difference between (5) and (4) as:
time-series together at the same time (Tiwari et al., 2020; Hung, 2020c).
This technique captures slow and existent interdependence among Sig (H) = S.ig (H) − Sgi. (H) (6)
markets than standard methods that only consider the time domain The net volatility spillover is simply the difference between the gross
perspective (Bouri et al., 2020; Al-Yahyaee et al., 2020). In addition, the volatility shocks transmitted to and those received from all other mar­
wavelet coherence provides a more intuitive understanding of the nexus kets (Diebold and Yilmaz, 2012).
between the examined variables signifying short, medium, and long-run
reactions, whether the relationships are positive or negative, and which 3.2. Wavelet coherence
variables are leading or lagging (Arain et al., 2020). As a result, it dis­
entangles the short-run holding period from the long-run holding period A brief note on wavelet coherence is defined as follows:
in the investment period and uncovers the real connectedness across the
assets.

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N.T. Hung Resources Policy 73 (2021) 102236

( ) ⃒ ( − 1 XY ( ))⃒2
⃒S s W s ⃒ agriculture grain commodities: corn (CORN), copper (COPPER), Soy­
R2n S = ( ⃒ ( )⃒2 )n ( ⃒ ( )⃒2 (7) bean (SOYBEAN), oats (OATS), wheat (WHEAT) and sugar (SUGAR) is
S s WnX s ⃒ .S s− 1 ⃒WnY s ⃒
− 1 ⃒
employed to examine the impacts of oil price shocks on agricultural
commodity prices before and after WHO announces Covid-19 outbreak
where S is a smoothing operator. Smoothing is achieved by convolution 30 January 2020 (Covid-19). Goodell (2020) indicates that Covid-19 has
in time and scale. significant influences on financial markets and institution both directly
S(W) = Sscale (Stime (Wn (s))) (8) and indirectly. Motivated by his work, we divide the whole sample into
two subsamples in order to shed light on the difference of the connect­
Where Sscale and Stime illustrate smoothing on the wavelet scale axis and edness between crude oil and commodity prices in the pre and during
in time, respectively. Smoothing operator we use in this study is the Covid-19 periods. The first subsample spans the period from 2 February
Morlet wavelet, so the more suitable definition is given by Torrence and 2018 to 30 January 2020 (pre-Covid-19 period) and the second one is for
Webster (1999): the period from 31 January 2020 to 14 May 2020 (Covid-19 period). The
( ) ( ( ) − t2 )⃒ crude oil and agricultural commodity prices are obtained from Thomson
⃒
Stime W = Wn s *c12s2 ⃒⃒ ​ and ​ Stime (W)s = (Wn (s)*c2 Π(0.6s))s |n (9) Reuters. We take into account the behaviours of the continuously
s compounded returns by taking the difference in the logarithm of two
consecutive prices.
where c1 and c2 are normalization constants and Π is the rectangle Table 1 represents the statistical properties of the crude oil and
function, the scale decorrelation length for the Morlet wavelet is 0.6. agricultural commodity real prices. Overall, the average returns of the
The wavelet coherence coefficient measures the local linear corre­ six commodities during the pre-Covid-19 period are higher than those
lation between two stationary time series at each scale and ranges during the Covid-19 outbreak. WTI oil prices are more volatile than
R2n (s) ∈ [0, 1]. prices of agriculture commodities over the sample period shown.
WnXY (s) is the cross-wavelet power. It can be seen as the local Skewness and kurtosis coefficients.
covariance between the two-time series at each scale. Given time series suggest that price changes of oil and all commodities are far from
x(t) and y(t), the cross-wavelet power can be written as normally distributed, also formally confirmed by the Jarque-Bera test
statistics.
WnXY (s) = WnX (s)Wn*Y (s) (10)
Fig. 1 illustrates the correlation of examined variables based on the
Pearson methodology, while Fig. 2 displays daily crude oil and agri­
where WnX (s) and Wn*Y (s) are continuous wavelet transforms of two time
culture commodity prices under investigation. We observe that all the
series x(t) and y(t). The symbol * represents a complex conjugate.
six agriculture commodity prices follow similar movements over the
The wavelet coherence phase is defined as
research period, while the WTI oil prices exhibit a downward trend.
( { ( − 1 XY )} )
− 1 I S s Wn (s)
φXY
n (s) = tan
{ ( )} (11)
R S s− 1 WnXY (s) 4. Empirical results

where I and R are the imaginary and real parts of smooth power In this section, we describe the empirical methodologies throughout
spectrum. the study. It starts with the novel spillover index developed by Diebold
and Yilmaz (2012) that allows for identification of time-varying net
directional spillover effects between crude oil and agriculture com­
3.3. Data
modity markets (Hung, 2020a). We also select wavelet coherence
analysis, which provides dynamic connectedness between crude oil and
In this study, the daily data of crude oil price (WTI) and six

Table 1
Descriptive statistics of daily returns.
Mean Max Min Std. Dev Skew. Kurt. JB Obs.

Panel A. Pre-Covid-19 outbreak

COPPER − 0.049979 .198920 − 4.655553 1.162873 0.024272 4.199522 31.40637*** 520
CORN 0.013705 4.499474 − 6.287426 1.304732 − 0.214445 5.548453 145.5369*** 520
OATS 0.044158 7.384538 − 5.406722 1.658070 − 0.035837 3.967673 20.51748*** 520
SOYBEAN − 0.018397 4.456832 − 4.846827 1.057752 0.197552 4.757077 70.67966*** 520
SUGAR − 0.009722 5.860098 − 5.142304 1.601134 − 0.006388 4.072442 25.06685*** 520
WHEAT 0.049128 6.174801 − 5.715841 1.70630 0.255039 3.355629 8.425791* 520
WTI − 0.028023 13.69440 − 8.233565 2.051979 − 0.005485 8.402906 636.1318*** 520

Panel B. Covid-19 outbreak

COPPER − 0.107787 3.714947 − 7.282868 1.691326 − 0.989413 6.467106 49.13778*** 77
CORN − 0.233622 3.011612 − 3.077166 1.282783 0.030072 3.072132 27.00196** 77
OATS 0.028451 3.071437 − 3.436764 1.635761 0.046265 2.239903 18.07789** 77
SOYBEAN − 0.059509 2.462191 − 3.232847 1.017817 − 0.288136 4.417752 7.221513* 77
SUGAR − 0.464746 5.624725 − 5.361418 2.439432 0.038068 2.826165 11.1047* 77
WHEAT − 0.153677 5.129329 − 3.772275 1.604214 0.842099 4.694621 17.60048* 77
WTI − 0.684653 22.39400 − 62.22046 12.18367 − 1.736547 11.07388 238.1872*** 77

Panel C. Full sample

COPPER − 0.057144 4.198920 − 7.282868 1.238996 − 0.303481 5.624361 180.4848*** 597
CORN − 0.016952 4.499474 − 6.287426 1.303521 − 0.182627 5.227854 14.73538*** 597
OATS 0.042211 7.384538 − 5.406722 1.653968 − 0.026050 3.767895 14.73538*** 597
SOYBEAN − 0.023493 4.456832 − 4.846827 1.052138 0.145115 4.732020 76.71769*** 597
SUGAR − 0.066124 5.860098 − 5.361418 1.731105 − 0.087809 4.028646 27.08773*** 597
WHEAT 0.023989 6.174801 − 5.715841 1.694012 0.320182 3.466947 15.62409*** 597
WTI − 0.109338 22.39401 − 62.22046 4.681595 − 4.024551 63.66050 93144.03*** 597

Note: *, **,*** represents the null hypothesis of normality is rejected at the 10%, 5% and 1% level, respectively.

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N.T. Hung Resources Policy 73 (2021) 102236

Fig. 1. Heat map of pairwise correlations before and after the WHO announcement.

agriculture commodity prices for different investment horizons (Dahir matches: 1) Spreading Covid-19 worldwide (a global threat outside of
et al., 2018; Hung, 2020c). China), 2) The beginning of large-scale enforced social distancing in
many Western countries (the confirmed cases in Italy, Spain, France and
4.1. Time-domain return spillover other European countries continued to increase), 3) the full global
manifestation of Covid-19 (Goodell and Goutte, 2021).
Table 2 reports the description of the static spillover index for returns More specifically, the corn market is the largest contributors to other
of the six agriculture commodity markets and WTI crude oil prices. markets, contributing 80.4%, followed by copper (13.9%) and oats
Moreover, we also calculate the average directional spillovers and net (5.8%) in the pre-Covid-19 period. In the Covid-19 outbreak, the results
spillovers in the pre and during the Covid-10 periods. This may provide from the return spillover index are similar to those of the pre-Covid-19
some straightforward insights into spillover effect transmission trend period. In the same vein, wheat, soybean, oats, sugar, crude oil are the
across the market under investigation. recipient of return spillovers with the net values of − 39.8, − 33, − 9.3,
The analysis for the spillover table for returns of crude oil and − 1.1, and − 6.3, respectively in the pre-Covid-19 period. More impor­
agriculture commodity markets is done based on a daily vector autore­ tantly, WTI crude oil price is the largest recipient of volatility spillover,
gressive model of order 4 with using generalized variance de­ with the net value of − 34.2%, followed by wheat (− 26.6) during Covid-
compositions of the 10-step-ahead forecast. The off-diagonal column 19 outbreak pandemics. In general, various factors and measures have
sums present the “contribution to others” while the off-diagonal row significantly contributed to the increased spillover effects coming from
sums give the “contribution to others”. Put it another way, directional the Covid-19 outbreak. Furthermore, the total spillover index is more
spillovers to is illustrated by “contribution to others” while directional significant and increases profoundly during the Covid-19 outbreak, this
spillover from is represented by “contribution from others” in the table. means that the intensification of crisis effect transmission across markets
The main diagonal components capture own-variable spillovers of under investigations. This segment of results falls in line with the find­
returns within and between markets. In a similar fashion, each compo­ ings of Guhathakurta et al. (2020), where the authors found the total
nent in each row, the off-diagonal opponents demonstrate the number of spillover index among crude oil and commodity markets attained high
contributions of other markets to the forecast error variance of a specific values during the oil price boom of the global financial crisis 2008, and
examined market. The net return spillovers are obtained by subtracting crash of 2015.
the contribution from others from contributions to others or vice versa, We further examine the dynamic behavior of total return spillovers
which offers the difference between the contribution a market gives to during the Covid-19 outbreak because it is crucial to take into consid­
and receives from others. The total spillover index is presented in the eration cyclical movements and bursts in spillovers that could not be
lower right corner of the table and approximately equal to the grand off- found out by the results shown in Table 2. Fig. 3 plots the time-varying
diagonal column sum (or row sum) with respect to the grand column return spillover index across examined markets, using 200-day rolling
sum including diagonals, expressed in percentage points. Briefly, the samples and 10-day-ahead forecast errors. The line graph was relatively
spillover table illustrates how innovations are received and transmitted uneventful, beginning with a burst of 23% in 2018, the return spillover
within the system under examination. trend decreased until the beginning of 2019 (19%). Following this, it
We observe the total static spillover index among markets, decom­ slightly increased in the middle of 2019, which corresponds to the Eu­
posed by transmitters and recipients of return spillovers in both periods ropean debt crisis. However, the cyclical movements and bursts in
under consideration. The critical substantive figure is the total spillover spillovers were associated with the Covid-19 crisis episode, the spike of
index which indicates an average of 16.1% in the pre-Covid-19 period spillover index was trigged after the WHO announcement about the
and 52.8% during the Covid-19 period for return forecast error variance Covid-19 outbreak 20 January 2020, indicating the strong effects of the
results. It is obvious that the bidirectional return spillovers between Covid-19 epidemic on return spillovers across oil-agriculture commod­
crude oil and agriculture commodity markets are remarkably higher in ity markets. As a result, we can conclude that the Covid-19 outbreak
the Covid-19 outbreak than in the pre-Covid-19 period. The important crisis strengthens return spillovers across crude oil and six agriculture
outcome was connected with increasing the magnitude and frequency of commodity markets. More specifically, the return spillover index was
price overreactions of agricultural commodities during the Covid-19 declining after February 2020 owing to the fall in the oil prices because
pandemic in early 2020. This scenario started to change in March of low demand in the Covid-19 outbreak period.
2020 since agricultural commodities seem to witness the most price The time-varying net return spillovers are estimated based on 200-
overreactions (Borgards et al., 2021). Perhaps this period roughly day rolling windows to determine which markets are net recipients

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Fig. 2. Daily WTI and agriculture commodity prices.

and net transmitters of spillovers. The dynamic net return spillover is largest net recipient of return spillover, reaching a maximum level of
calculated by subtracting directional “to” spillover from directional 12.5% in the middle of 2019. The second-largest recipient of return
“from” spillover. Therefore, we observe the various magnitude of return spillovers was sugar and oats, with the high level of net return spillovers
spillover according to positive or negative shocks, namely positive during the Covid-19 outbreak. It is valid for the case of WTI crude oil
(negative) values show a source (recipient) of volatility to (from) other prices, which is consistent with the results of Table 2. On the other hand,
markets. corn, soybean and wheat are net transmitters of return spillovers. Its net
Fig. 4 reports the sign of the net spillovers that allows us to distin­ contribution in market return is approximately 10% in the pre-Covid-19
guish proportion in which good and bad volatilities from individual period, reaching a peak of 18% in the Covid-19 period. Overall, the net
assets propagate among markets and result in negative and positive return spillovers fluctuated with high spikes during the Covid-19
spillovers that materialize in the volatilities of the assets under outbreak. The bar graph in each market reveals positive (net trans­
investigation. mitter) value and negative (net recipient) values in the pre and during
In contrast to the results presented in Table 2, the copper was the the Covid-19 outbreak. Our result gives further empirical evidence to the

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Table 2
Total directional return spillovers.
COPPER CORN OATS SOYBEAN SUGAR WHEAT WTI From others

Panel A: Pre-Covid-19 period

COPPER 97.4 0.2 0.6 1.1 0.0 0.3 0.4 2.6
CORN 0.3 97.6 0.0 0.0 0.2 0.6 1.3 2.4
OATS 1.2 11.6 84.9 0.5 1.3 0.2 0.3 15.1
SOYBEAN 4.4 30.4 0.5 63.3 0.0 1.0 0.4 36.7
SUGAR 0.7 0.3 0.8 1.4 96.6 0.1 0.1 3.4
WHEAT 0.1 37.4 3.4 0.2 0.5 57.4 0.9 42.6
WTI 7.2 0.4 0.5 0.3 0.4 0.7 90.4 9.6
Contribution to others 13.9 80.4 5.8 3.6 2.4 2.8 3.3 112.4
Contribution including own 111.3 178.1 90.7 67.0 98.9 60.2 93.7 16.1%
Net spillovers 11.3 78.1 − 9.3 − 33 − 1.1 − 39.8 − 6.3

Panel B: Covid-19 period

COPPER 45.7 7.6 10.4 19.0 7.0 2.9 7.3 54.3
CORN 16.5 48.8 3.7 11.4 7.0 7.9 4.6 51.2
OATS 5.3 16.8 58.7 5.7 6.2 4.0 3.3 41.3
SOYBEAN 14.9 27.0 7.3 36.9 5.3 6.3 2.3 63.1
SUGAR 13.5 6.5 3.0 5.8 64.7 1.7 4.8 35.3
WHEAT 14.1 17.5 11.9 8.0 9.1 35.8 3.6 64.2
WTI 8.9 14.1 5.9 8.2 8.3 14.8 39.8 60.2
Contribution to others 73.2 89.5 42.3 58.1 42.8 37.6 26.0 369.6
Contribution including own 118.9 138.4 101.0 95.0 107.5 73.4 65.8 52.8%
Net spillovers 18.9 38.4 1.0 − 5 7.5 − 26.6 − 34.2

investigation. Moreover, wavelet coherence analysis can offer fresh

insight into how such the agriculture commodity markets and crude oil
prices have evolved over time and across frequency because bivariate
wavelet coherence frameworks allow us to capture the co-movements
and lead-lag correlation structures between the selected variables
quickly (Hung, 2020a). Fig. 5 shows the wavelet coherence plots for
each couple of indicators corresponding to pre and during the Covid-19
periods.
The horizon axis illustrates the time elements and frequency ele­
ments are denoted on the vertical axis. The horizontal axis spans the pre-
Covid-19 period from February 2018 to January 2020, and the Covid-19
Fig. 3. Dynamic return spillover indices across WTI and six agriculture com­ outbreak from February 2020 to May 2020. On the other hand, the
modity markets. frequency bands on the vertical axis are based on daily units covering
from 4-to 128-day scales for the pre-Covid-19 period, and from 4-to 16-
propositions of Lu et al. (2019) and Peersman et al. (2019) in time day scales for the Covid-19 outbreak. Besides, we rely on the color
domain space. degradation to interpret the degree of local coherency between crude oil
and agriculture commodity markets. The colors go from blue to yellow.
More precisely, regions with significant intercorrelations are exhibited
4.2. The wavelet coherence by warmer colors (yellow), while cooler colors (blue) islands demon­
strate the two variables are less dependent. Cool islands outside of the
Using the wavelet coherence, we analyze the time-varying associa­ significant areas suggest frequencies and time with no connectedness in
tions between the WTI crude oil prices and agriculture commodity the variables. As a result, the wavelet coherence tool tends to show the
indices. The current Covid-19 crisis provides a unique opportunity to nexus between crude oil prices and agricultural commodity markets,
examine the dynamic co-movements between the variables under

Fig. 4. Net return spillovers, six asset classes.

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Fig. 5. Wavelet Coherence plots, pairwise estimates.

whilst the time-varying connectedness of time series are determined by continues to increase. At the same time, the US has the most confirmed
observing lead-lag structure through different investment horizons. cases, and over 170 countries are now affected. Looking at the case of
Arrows depict the direction of interrelatedness and causal effect WTI-COPPER, WTI-CORN, WTI-OATS, WTI-SUGAR, and WTI-
connection between crude oil prices and agricultural commodity mar­ SOYBEAN, wavelet coherence plot exhibits the existence of substantial
kets. For example, → and ← suggest that both crude oil prices and coherence islands between the onset of the novel coronavirus and in the
agricultural commodity markets are in phase and out of phase, respec­ middle of May, and at medium frequencies which show a medium-term
tively. An in-phase indicates that the return series move in the same co-movement between WTI crude oil and agriculture commodity mar­
direction (positive correlation), while they move in the opposite direc­ kets corresponding to a constant increase of the infected counts across
tion when two variables are in out of phase (negative correlation). the world and the free fall of oil prices. This finding suggests that a high
In addition, ↗ and ↙ reveal that crude oil prices are leading agri­ level of WTI and agriculture commodity markets co-movements is seen
culture commodity markets, while ↘ and ↖ show that agriculture during the Covid-19 crisis, supporting the contagion hypothesis. We can
commodity markets are lagging those of crude oil prices. identify causality and phase differences between WTI crude oil prices
By taking a close look at Fig. 5, we find several graphical evidence of and agricultural commodity markets. We observe that the primary and
low co-movements between crude oil prices and agriculture commodity most significant period of coherence and co-movements in both 4-8-day
indexes across frequencies and overtime in the pre-Covid-19 period. This and 8-16-day bands since 1 February 2020, that arrows predominantly
is particularly true in the case of the wavelet coherency between WTI- pointed up and to the right signifying an in-phase connectedness and a
SOYBEAN, WTI-CORN and WTI-OATS as shown by big islands of blue positive relationship between WTI crude oil prices and agricultural
color localized in the pre-Covid-19 period in low, medium and high commodity markets. Besides, these arrows also reveal that WTI crude oil
frequencies band. However, the coherency between WTI-SUGAR, WTI- led agriculture commodity returns in the short and medium terms, over
WHEAT and WTI-COPPER experiences some significant regions of yel­ the full world containment. Apparently, several episodes of the Covid-19
low color localized in high and medium frequencies band, correspond­ outbreak influence these results.
ing to the periods December 2019 and January 2020 when Chinese Interestingly, in line with the findings displayed in time-domain re­
authorities announced the novel coronavirus incurred in Wuhan. turn spillover and wavelet coherence, we find significant return spill­
The contagion during the Covid-19 outbreak, all markets under overs from crude oil prices to the agricultural commodities and from
consideration seem to react to bad news coming from Wuhan city, each of the agricultural commodities to WTI markets. Specifically, there
Chinese authorities declared the new coronavirus on 21 December 2019. exists a significant co-movement of WTI crude oil prices and agriculture
From the inspection of Covid-19 outbreak figure, some vital explana­ commodity markets during the Covid-19 outbreak period. A global price
tions emerge. In contrast to pre-Covid-19 period, the wavelet coherence war in crude oil and several global restrictions on travel and immigra­
analysis between the crude oil and agriculture commodity markets in­ tion, has profoundly influenced the global economy’s level of economic
dicates a strong co-movement at all time scales and different frequency activity as a whole (Gray, 2020; Goodell and Goutte, 2021). Further­
bands, suggesting a strong connectedness between both markets during more, the Commodity Markets Outlook published by the World Bank in
the Covid-19 outbreak. More specifically, this tendency is more pro­ 2020 reveals that the increasing commodity return spillover is because
nounced during the onset of the Covid-19 outbreak pandemics. of profound changes in each type of commodity’s supply and demand. It
The associations between crude oil and agriculture commodity implies that the demand for agricultural commodities increased enor­
markets seem to react to bad news coming from the Covid-19 crisis. On mously during the Covid-19 outbreak. These results are consistent with
27 March 2020, the number of confirmed cases surpassed 500000, and it recent studies on the influence of the Covid-19 pandemic on agricultural

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commodities. For instance, Borgards et al. (2021) consider the over­ over time, amplifying our understanding of the economic channels
reaction behavior of 20 commodities futures, focusing on the effect of through which the agriculture commodity markets are correlated.
the Covid-19 pandemic, and find that both the number and the ampli­ Overall, the current results cast light on that in comparison with the
tude of overreactions are higher during the Covid-19 pandemic. Ade­ pre-Covid-19 period, and the return spillovers are more apparent during
koya and Oliyide (2020) investigate the impact of the pandemic on the the Covid-19 crisis. More importantly, there exist significant dependent
connectedness between commodity and financial markets and unveil patterns about the information spillovers across the crude oil and agri­
that the commodity price spillovers increase dramatically during the culture commodity markets might provide prominent implications for
first wave of the Covid-19 pandemic in early 2020. In a similar fashion, portfolio managers, investors, and government agencies. Apparently,
Hung (2020d) also uses both the spillover index and wavelet coherence the commodity boom and the later sharp drop in prices during the
approaches to examine the influences of time-varying interlinks be­ Covid-19 outbreak were gone with an unprecedented rise in activity
tween crude oil prices and five developed stock markets in Europe. He across international investors in the commodity markets. Investors
reports that the price spillovers between these variables increase should unroll their positions in one commodity market if other markets
strongly during the Covid-19 pandemic. drop prices suddenly lead them to reduce risk. At the same time, the
Overall, we find a strong co-movement of WTI crude oil prices and Covid-19 pandemic is still ongoing, it can further impact oil prices
agriculture commodity markets predominantly during the Covid-19 because of the travel restrictions around the world. Hence, to prevent
outbreak compared to pre-Covid-19 period. However, levels of the in­ higher inflation due to the variations in agriculture commodity prices,
tensity of this relationship vary through the period of research, with policymakers should take into consideration oil prices when making
several intervals witnessing both negative and positive interaction. The policies to maintain relatively stable prices of agricultural commodities.
results of Živkov et al. (2019b), Melichar and Atems (2019), Su et al. We attribute the bidirectional return spillovers between crude oil prices
(2019), Kang et al. (2019), Chen et al. (2019) and Živkov et al. (2019b) and agriculture commodities, which provides a practical approach for
can be extended in this segment of the findings, where they found a policymakers to monitor and regulate oil and agriculture prices.
strong connectedness between crude oil prices and agricultural com­ However, we acknowledge that our results should be taken with
modity markets in the periods of increased market turbulence. Besides, caution, given the small sample size and statistical inference from the
our results also extend the findings of Kumar et al. (2019), Albulescu used methods. We take into account that our paper makes a significant
et al. (2020), Mensi et al. (2017), Kumar et al. (2020), Kang et al. (2019), contribution to the fast-growing body of work on the financial influences
Tiwari et al. (2018) and Tiwari et al. (2021) with the estimates of re­ of Covid-19, and to an ongoing concentration in the literature in
action of the relationship of crude oil prices to agricultural commodity connection with the oil-agriculture commodities relationship.
markets. They argue a significant nexus between the agriculture and
crude oil markets in terms of price and volatility spillovers. Availability of supporting data

5. Conclusion and policy implications Please contact author for data and program codes requests. Data is
obtained from Bloomberg and Matlab is used to organize data.
The Covid-19 outbreak has been spread rapidly all over the world
already. Along with causing death worldwide, the Covid-19 outbreak
Funding
has had a remarkable impact on the global economic cycle, financial and
commodity markets. Of course, the outbreak also generated structural
The author received no financial support for the research, authorship
changes in the pricing dynamics for a wide range of different markets,
and/or publication of this article.
with an emphasis on commodity markets owning to their interrelated­
ness with the real economy. The present empirical study investigates the
Authors’ information
spillover effects, and time-frequency connectedness between the crude
oil prices and the agriculture commodity markets using both the spill­
PhD in Finance, University of Finance-Marketing, Ho Chi Minh City,
over index of Diebold and Yilmaz (2012) and the wavelet coherence
Vietnam.
approaches in the pre and during Covid-19 periods. The whole sample
period is from February 2018 to May 2020. The first period covers the
pre-Covid-19 period from 2 February 2018 to 30 January 2020. The CRediT authorship contribution statement
second period is the Covid-19 period from 31 January 2020 to 14 May
2020, which was characterized by widespread Covid-19. Ngo Thai Hung: Conceptualization, Data curation, Formal analysis,
Our empirical results may be summarized as follows. First, we Funding acquisition, Investigation, Methodology, Project administra­
investigate trends in the bidirectional net return spillover index across tion, Resources, Software, Supervision, Validation, Visualization,
crude oil and agriculture commodity markets. The directional associa­ Writing – original draft.
tion from the crude oil market to agriculture commodity returns was
lower than that in the opposite direction. Furthermore, the return
spillovers exhibit an increasing pattern during the Covid-19 outbreak Declaration of Competing interest
pandemics, confirming spillovers’ intensity during periods of turmoil.
Specifically, the crude oil market was a net recipient of return spillovers I hereby confirm that no conflict of interest has arisen in undertaking
during the Covid-19 outbreak crisis, while it was a net transmitter of this research. I also hereby confirm that this piece of work is original and
return spillovers in the pre-Covid-19 periods. Corn, soybean, and wheat the manuscript has not been previously published or submitted any­
markets were net transmitters of return spillover, while the copper, where else.
sugar, and oats were net recipients of return spillover over the period Nagayev et al., 2016, Rasoulinezhad and Yoshino, 2019, Zhang et al.,
shown. Second, we find a strong co-movement of WTI crude oil prices 2020, Zivkov et al., 2019a
and agriculture commodity markets predominantly during the Covid-19
outbreak compared to the pre-Covid-19 period. However, levels of the Acknowledgements
intensity of this relationship vary through the period of research, with
several intervals witnessing both negative and positive interactions. The authors are grateful to the anonymous referees of the journal for
Finally, our findings indicate significant heterogeneity among agricul­ their extremely useful suggestions to improve the quality of the article.
ture commodity markets in the degree of spillover to crude oil prices Usual disclaimers apply.

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