Long Run Relationship and Structural Change Between the US and EU Wheat Export Prices

This paper studies the long run price relationships between two major wheat exporters in the world wheat market. Since the emergence of the EU as a major wheat exporter, the competition between the EU and the US has been fierce for a larger share of world wheat exports. One would expect through arbitrage and substitution the price of EU and US wheat would move together. Time series analysis is used to obtain information regarding the long run relationship between the US and the EU wheat prices. The results provide evidence of no linkages in the period prior to the implementation of the CAP reform. However, clear evidence of a long run relationship is found after the CAP reforms were implemented. In the long run the US soft wheat price seems to be acting as price leader for EU wheat. These results provide evidence that the EU and US wheat markets have apparently become more integrated in the post 1992 CAP reform period with EU prices showing a steady convergence towards US prices which may be a result of policy reform.