# An economic study of the Brazilian cocoa prices in the international market

3-1970

Thesis

## Degree Name

Master of Science

## Major

Agricultural Economics

James G. Snell

## Committee Members

Charles Sappington, David W. Brown

## Abstract

The objectives of this thesis were twofold. It was an attempt,first, to clarify the nature of economic relationship among various factors affecting the Brazilian cocoa price level in the world market,and secondly, to predict Brazilian cocoa prices in the international market.The period covered by the study was from 1946 to 1966, and secondary data were used in the analysis.Least square regression was applied to fit four linear structures to the data representing the variables assumed to be the most important economic factors in the determination of Brazilian cocoa prices. In the first equation the cocoa prices deflated by an appropriate price index appeared in relation with Brazilian cocoa production, the cocoa production from other areas, and the cocoa stock in consuming areas. In the second one, Brazilian cocoa production and cocoa inventories held by consuming countries appeared in relation with deflated Brazilian cocoa prices. In the remaining two structures the dependent variable was not deflated and the price index appeared as an extra variable. In this connection Brazilian cocoa price was stated as a function of Brazilian Cocoa production, the rest of the world cocoa production, the level of cocoa stock held by consuming areas, and the price index. In the last structure Brazilian cocoa production, the cocoa stock level, and the price index were used as independent variables. The rationality for using such economic factors was based on the brief analysis of the world cocoa economy carried out by this study. The following were thestructures obtained by this analysis:Y1=56.646-0.032891 X2(t-1) + 0.0082769 X3 - 0.011968 X1(t-1)
(0.01663) (0.02961) (0.06271)
Y1= 43.296- 0.041702 X3
(0.01622)
Y'1 = -14.553-0.04971 X2(t-1)+0.90478 X4-0.04409 X1(t-1)+0.012049 X3
(0.01374)(0.22781)(0.04739)(0.02143)
Y'1 = -2.7673-0.048754 X3-0.50215 X4-0.011009 X1(t-1)
(0.01740)(0.26007)(0.06083)where:

Y1 is the annual average wholesale New York spot price ofBrazilian cocoa deflated by an appropriate price index; Y’1 is thesimple annual average wholesale New York spot price of Braziliancocoa; X1 is the level of cocoa production in Brazil; X2 is theproduction of cocoa beans in other areas; X3 is the volume ofcocoa beans in stock in consuming areas; and X4 is the wholesaleprice index calculated by the Bureau of Labor Statistics,On the basis of the statistical significance of the increases in the variations explained by the variables used in the equations, thestructure below was selected as the one for attaining the objectives ofthe study:Y'1 = -14.553 - 0.04971 X2(t-1)+0.90478 X4-0.04409 X1(t-1)+0.012049 X3
(0.01374)(0.22781)(0.04739)(0.02143)
R2 = 0.6281   Se =6.6990The ability of the model in predicting the Brazilian cocoa pricesfor 1967 and 1968 was considered reasonable. Inserting data into the equation above and solving for Y’1, the Brazilian cocoa price level was estimated at 22.46 cents while the actual price was 26.35 cents per pound in 1967, an underestimate of 3.89 cents; and at 23.39 cents while actual price in 1968 was 32.85 cents per pound, an underestimate of 9.46cents per pound. In dealing with future forecasts caution must be taken since from the coefficient of determination of 0.6281 it may be inferred that more price variation could be explained by the effects of other variables not included in the analysis.Further studying about the behavior of Brazilian cocoa price on monthly basis would result in a refinement of the model achieved in the present study.

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