Spot and future price relationship of turmeric: An econometric study

Abstract:

This study was undertaken to investigate the linkage between spot and futures prices of turmeric, with particular emphasis on stationarity, co-integration, causality, price volatility, and short- and long-run price behaviour. Monthly time-series observations of turmeric spot and futures prices covering 2005–2025 were obtained from AGMARKNET and NCDEX. Sangli and Hingoli were considered as the two spot markets. Correlation and regression techniques were applied to measure the association between spot and futures prices. The Augmented Dickey-Fuller (ADF) test, Johansen’s Multiple Co-integration test, Pair-wise Granger Causality test and ARCH-GARCH model were subsequently employed to examine stationarity, long-run association, causal direction and price volatility. The findings indicated a strong and statistically significant positive association between lagged futures prices and turmeric spot prices in both Sangli and Hingoli. Regression estimates further showed that the futures price observed one month earlier exerted a significant positive effect on the current spot price. The ADF results showed that the price series were non-stationary in their level form but attained stationarity after first differencing. Johansen’s test identified one co-integrating relationship for futures and spot prices in each market, confirming the presence of a stable long-term equilibrium. Granger causality was bidirectional between futures and Sangli spot prices, while the relationship was unidirectional from futures prices towards Hingoli spot prices. ARCH-GARCH estimates showed considerable persistence of volatility shocks in the futures as well as both spot markets. The findings highlight the importance of timely dissemination of futures-price information to farmers so that they can make better marketing decisions and obtain more remunerative prices.