Abstract
Cyclical exposures of farm profit to the economic environment are a fact of life for farmers. By utilising the farmer terms of trade as a net profit margin metric, we show how wavelet analysis can be used to decompose the cycle and trend, analyse causal influences, and detect structural breaks. With the NZ dairy industry as case study, the wavelet decomposition reveals that shorter cycles are almost wholly the result of commodity prices. Longer cycles are produced by the interaction of commodity prices with the exchange rate, but with a strong natural buffering element. The buffer was upset following the Asian crisis of 1997–1998, but may have restored itself since. A favourable long-term trend has appeared from the mid nineties onwards. Implications for risk management are briefly examined.
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Bowden, R., Zhu, J. The agribusiness cycle and its wavelets. Empirical Economics 34, 603–622 (2008). https://doi.org/10.1007/s00181-007-0140-7
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DOI: https://doi.org/10.1007/s00181-007-0140-7