An examination of the relationship between U.S. and Canadian durum wheat prices

Durum wheat is one of the commodities for which there is intense trade competition between the United States and Canada. This article examines the relationship between Canadian and U.S. durum wheat prices using cointegration and an asymmetric error correction approach. The overall results suggest that a long run relation holds between the U.S. and Canadian durum wheat prices. The U.S. price responds to restore the equilibrium relationship with the corresponding Canadian price, while the Canadian price evolves independently. Using tests for structural change it is revealed that changes in Canadian domestic policy (the repeal of the WGTA) had an effect on this long run relation. Since the withdrawal of the WGTA, quality differences in durum wheat for both countries seem to matter in the dynamics and integration of U.S. and Canadian durum wheat prices.