Risk connectedness and portfolio optimization across agricultural commodity markets: soybean oil, corn, wheat, soybeans and oats

Purpose This study investigates the intricate dynamics of volatility connectedness and portfolio optimization within major agricultural commodity markets (Corn, Wheat, Soybeans, Soybean oil and Oats), with a specific emphasis on the disruptive effects of the COVID-19 pandemic and the subsequent military conflict in Ukraine in 2022. Design/methodology/approach This study uses the advanced Time-Varying Parameter Vector Autoregressive (TPV-VAR) extended joint connectedness method. Moreover, this study utilizes a Minimum Connectedness Portfolio (MCoP) approach along with Hedging Effectiveness metrics to examine portfolio risk management strategies. Findings The results show a substantial increase in volatility connectedness induced by the COVID-19 pandemic compared to the Russia–Ukraine conflict, highlighting the vulnerability of agricultural markets to geopolitical and global health crises. Furthermore, we reveal that soy oil and soybean (corn and wheat) emerge as net shock transmitters (receivers) during the COVID-19 pandemic and shift to net receivers (transmitters) during the Russia–Ukraine conflict period. However, oats market is net receivers of shocks irrespective of turbulent period. The analysis of portfolio investment strategies suggests a greater allocation to wheat during the COVID-19 pandemic and higher emphasis on soy oil during the Russia–Ukraine conflict. Practical implications Our findings provide significant implications for market actors. They provide useful insights on portfolio diversification and optimal hedging strategies. By recognizing which agricultural commodities are more suitable for hedging during specific crises, they can adjust their investment strategies accordingly to mitigate losses. Investors should be aware of assets that represent a source of shock or contagion in the system and those how are net shock receiver for a better fund allocation. Investors should be aware that wheat and soy oil are effective for hedging the agricultural commodity portfolio during the COVID-19 pandemic crisis, while soybean and soy oil are suitable during the Russia–Ukraine conflict. Policymakers should implement the reforms to minimize the contagion likelihood and the effects of shock contributor assets. Originality/value To the best of our knowledge, this study is the first study to investigate the dynamic volatility connectedness and portfolio optimization among soybean oil, corn, wheat, soybeans and oats commodity markets by focusing on the turbulent periods including the Ukraine–Russia tension and the pandemic crisis.