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Abstract

The price relationships governing dairy commodity price transmission among the US, Oceania, and EU markets are considered using vector autoregressive (VAR) and vector error correction (VECM) models. Results demonstrate a one-way price relationship for US dry milk powders as price shocks in Oceania and the European Union spread to the United States while US price shocks do not spread into those markets. US prices for cheddar and butter are impacted by price shocks in Oceania and the EU. However, US price shocks also spread into the Oceania market and may reflect potential arbitrage opportunities. Historically thought to be shielded from international prices through low import quotas and high out-of-quota tariffs, these results are the first to empirically demonstrate that US dairy commodity prices are influenced in both the long-run and short-run by international dairy commodity prices.

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