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follow the pdf step and answer the questions.

Note:

  • The following changes have been made to question 2a
    • Plot the relationship between agricultural commodity prices (Farm Product Price Index) & retail food prices (Food CPI). Do this for Jan 2020 through to July March 2022.

    Please submit the following:

  1. Your typed answers as a PDF file
  2. Your completed excel file

Need some Excel skills and need economic analysis skills

Assignment 1 (FRE 501)
Name & Student ID:

Instructions:
i. Data for the questions are provided in the accompanying excel file

ii. Please submit the following on Canvas:
o Your typed answers as a PDF file
o Your completed excel file
o Your class participation record (Lectures 1 to 4)

Question 1: (23 marks total)

a. Plot world wheat prices from Jan 2015 to July 2022. (1)
b. On the same graph, plot inflation rates over the same period and on the secondary axis

(view example on the excel file). (1)
c. What is the relationship between the two? Run a regression to show the relationship

statistically, wheat prices as the independent variable and inflation as the dependent
variable. (2)

d. State the month when inflation really begins to take off (increase)? (1)
e. Now re-run the regression in two parts, first for the period from Jan 2015 to Dec 2020;

second from Jan 2021 to July 2022. Explain your results. (3)

Background Information:

Use Canada as an example of a wheat producer/exporter. Note that the production of
wheat each year requires farmers to decide in March-April which crops they will grow. If
they wish to produce more wheat, they will allocate more of their land to wheat and
away from the alternative crop they would otherwise be growing (e.g., canola). In
anticipating their wheat production, they will have to acquire adequate supplies of
fertilizer and other farm inputs, typically making purchases also in those early spring
months. The wheat price will be determined by the world supply and demand. Some
supplies of wheat will be determined even earlier if there is planting of winter wheat or
an earlier growing season.

f. Describe the process by which inflation will affect Canadian wheat prices. (3)

More information:

Suppose inflation in wheat producing countries starts to rise in (Canadian data follows)
July 2021, jumping from 3.1 to 3.7%, and only begins to rise seriously in Jan 2022
(monthly inflation hits 5%), rising each month to June (8.1%). By planting decision time,
inflation is running at annual rate of 5-7% (year over year, calculated each month.

g. How will that affect wheat prices over the period from January to July 2022 that we
have so far observed? Putting this differently, if there was no significant inflation in
2021 through to date, how would this have changed the observed rise in global wheat
prices? (3)

h. How would the actual observed inflation affect world wheat prices looking forward (in
the future), ignoring other factors in the wheat market such as the war in Ukraine? (2)

i. Assume that fertilizer input costs account for 30% of total revenues. If fertilizer costs
doubled, and if wheat prices increased by 50%, we wish to calculate the net effect on
profits and planting decisions (these are roughly realistic numbers f

Qn 1

Data Sources
Wheat Prices: World Bank Commodities Price Data (The Pink Sheet) https://www.worldbank.org/en/research/commodity-markets
Canadian Inflation Rate: Bank of Canada https://www.bankofcanada.ca/rates/price-indexes/cpi/
Period Wheat, US HRW ($/mt) Canadian Inflation Rates Example
2015-Jan 248 1.0%
2015-Feb 237 1.0%
2015-Mar 231 1.2%
2015-Apr 223 0.8%
2015-May 215 0.9%
2015-Jun 210 1.0%
2015-Jul 197 1.3%
2015-Aug 180 1.3%
2015-Sep 173 1.0%
2015-Oct 173 1.0%
2015-Nov 177 1.4%
2015-Dec 189 1.6%
2016-Jan 193 2.0%
2016-Feb 187 1.4%
2016-Mar 191 1.3%
2016-Apr 187 1.7%
2016-May 172 1.5% Answer
2016-Jun 173 1.5%
2016-Jul 152 1.3%
2016-Aug 149 1.1%
2016-Sep 151 1.3%
2016-Oct 152 1.5%
2016-Nov 151 1.2%
2016-Dec 142 1.5%
2017-Jan 153 2.1%
2017-Feb 155 2.0%
2017-Mar 154 1.6%
2017-Apr 166 1.6%
2017-May 180 1.3%
2017-Jun 190 1.0%
2017-Jul 202 1.2%
2017-Aug 171 1.4%
2017-Sep 179 1.6%
2017-Oct 176 1.4%
2017-Nov 180 2.1%
2017-Dec 184 1.9%
2018-Jan 192 1.7%
2018-F
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