Abstract
In 2020, the sudden global epidemic of novel coronavirus pneumonia (COVID-19) caused abnormal fluctuations in the global grain market and posed severe challenges to world grain security. Therefore, it is very important for countries around the world to analyze the determinants of grain price and put forward corresponding strategies to ensure grain safety. In this paper, we theoretically discussed the relationship between financial liquidity, speculation, and grain price for the first time. Based on the analysis of Fisher’s equation, this paper argues that the theoretical basis of grain financialization is closer to the volatility theory of the money market. Then, we employ the structural vector autoregression model (SVAR) to explore the impulse response of grain price to the structural shock of world grain production, demand, financial liquidity, and speculation. Our empirical results show that the effects of financial liquidity and speculation on the grain price are more significant. Meanwhile, grain demand changes caused by the global economy have no significant impact on grain price.
Highlights
The stability of grain prices is considered a key issue for grain security and social stability in many countries
The quantitative easing of the US dollar leads to the devaluation of the US dollar and some hot money going into the international grain market for speculation, which caused abnormal fluctuations in the global grain market
By observing the trend of the international grain price and the global macroeconomy in recent years, it is not difficult to find that there is a close relationship between the sharp fluctuation of international grain prices and the speculation of the grain futures market, as well as the financial liquidity generated by the quantitative easing monetary policy launched by the Federal Reserve
Summary
The stability of grain prices is considered a key issue for grain security and social stability in many countries. The quantitative easing of the US dollar leads to the devaluation of the US dollar and some hot money going into the international grain market for speculation, which caused abnormal fluctuations in the global grain market. A large amount of speculative capital flowed into the international grain futures market and other derivatives markets, resulting in large fluctuations in international grain prices This phenomenon of grain prices deviating from traditional supply and demand is called grain financialization. The global excess liquidity, the rapid development of the derivatives market, and the influx of speculative capital have promoted the trend of grain financialization, resulting in a more complex decision-making mechanism of international grain prices [8]. Global demand has a negligible effect on grain pricing
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