Dynamics of price volatility spillover in the U.S. catfish market

Abstract

The U.S. catfish aquaculture industry is arguably one of the earliest aquaculture segments in the world to industrialize, and a pioneer in demonstrating the benefits of innovation-driven aquaculture supply chain development over wild-harvested fisheries. However, the industry substantially contracted through the 2003–2013 period. High and volatile feed prices, volatile farm prices, a rapid surge in low-priced imports, and a strict regulatory compliance burden on a maturing industry are thought to be some of the major factors causing this decline. We analyze the price volatility spillovers in the U.S. catfish industry and the related feed/feed ingredient markets. Our empirical model is the multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model allowing for cross-market and own-market impacts from shocks and volatilities in prices. Our results indicate bidirectional spillovers among catfish market prices and most of the feed ingredient prices.

Keywords:

• Catfish aquaculture
• generalized autoregressive conditional heteroscedasticity
• uncertainty
• volatility

Notes

1 This also indicates the need for continued federal and state support for the catfish sector.

2 See for example: (Kinnucan, 2003; Muhammad et al., 2010; Norman-Lopez & Asche, 2008; Quagrainie & Engle, 2002; Rabbani et al., 2011; Scuderi & Chen, 2018; Surathkal & Dey, 2020).

3 Engle et al., 2020; Engle & Stone, 2013; Engle et al., 2019; Van Senten et al., 2018.

4 Branch and Tilley (1991) use a regression-based framework to provide an empirical analysis of risk factors in catfish aquaculture.

5 This time period witnessed some dramatic changes in the feed prices as well as in the catfish farming sector itself. By 2014, feed-grain prices had become relatively more stable to a new equilibrium level. In addition, we are also constrained by lack of publicly available data, particularly on markets of farmed catfish, for the periods beyond 2013.

6 The database provides the maximum and the minimum prices recorded in a given time period for a given market. We approximated the average price as the average of the maximum and minimum prices in a given month for the Arkansas markets. Corn prices are the Country Elevator prices in Arkansas for US No. 2 grade of the Yellow class grains. Soybean prices are the average Country Elevator prices in Arkansas for US No. 1 grade grains.

7 Corn and soybeans prices in the USDA database were given in dollars per bushel. One bushel of corn weighs 56 pounds, and one bushel of soybeans weighs 60 pounds.

8 We scaled the log-returns by a factor of 100 to scale up the estimated parameters of the GARCH model which are usually small in magnitude and hence are difficult to report otherwise.