Price Behavior of Jalapenos in the U.S. and Mexico

Abstract

This paper studies the behavior of Jalapeno prices in the U.S. and Mexico. In particular, it explores the influence of seasonal and non-seasonal factors on prices of Jalapeno peppers. Also, it measures the influence of cyclical events such as weather and other periodical seasonal events by estimating seasonality in the conditional means. This allows for a more precise observation and analysis of other non seasonal events such as the influence of substitutes, transportation costs and a shock, in the form of food safety regulations. Results have implications for accurate risk and market assessment in producing, storing, and sourcing Jalapeno peppers. Seemingly unrelated Regression Estimation is used to obtain more efficient standard errors by considering cross-city error correlations. We selected prices from the terminal markets of Chicago, San Francisco and Mexico City to conduct this study. The use of these locations allows for a comparison of markets across countries as well as different regions in the U.S. Specifically, we use lag Jalapeno prices from the three locations to measure the significance of geographically separated markets in the weekly prices of Jalapenos. Findings suggest Mexico City’s prices play an important and positive role in determining Jalapeno prices in the U.S. markets. Results also have implications for the use transportation costs when modeling Jalapeno weekly prices; they suggest shocks to transportation costs don’t transfer to Jalapeno prices. Estimated results also show strong seasonality patterns that reflect numerous cyclical supply and demand factors.