Did grain futures prices overreact to the Russia-Ukraine war due to herding?

Abstract

We study the impact of the 2022 Russian invasion of Ukraine on grain futures prices. The war allows us to evaluate whether commodity futures markets at the time were driven by investor herding. Using event study methods, we find that wheat futures prices rose by 30 percent above the counterfactual immediately after the invasion, more than corn futures prices, which were up 10 percent. This relative price response cannot be explained by herding behavior. Furthermore, prices for control commodities did not respond to the war at all, contradicting the herding theory. There is no statistical evidence of abnormal speculative pressure in the market around the time of the invasion, and we conclude the markets put a fair price on the wartime risk of Black Sea grain shipment disruptions.