Abstract

This paper investigates the role of speculative activity in the agricultural commodity futures market in the period 2006-2017. Specifically, the study tests the causal relationship between the prices of fourteen agricultural commodities listed on the US commodity market Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBT) and the trading activity of commodity index traders (CITs) and swap dealers. The analysis uses the Granger Causality test based on a seemingly unrelated regression (SUR) system. The results show that CIT and swap dealer positions did not significantly influence prices of agricultural commodities, but might explain the increase in their price volatility. The findings disprove Masters’ hypothesis that speculators produced a bubble in the commodity market. In this context, any attempt (such as taxes) by lawmakers to limit speculation should be carefully evaluated. Key words: Commodity index traders, swap dealers, agricultural futures market, Masters’ hypothesis, Granger causality.

Highlights

  • In recent years, prices of agricultural commodities have undergone abrupt variations, which have threatened food security of countries, which are more dependent on food imports and characterized by poverty

  • This paper aims to study the impact of commodity index traders (CITs) and swap dealers‟ trading activity on agricultural commodities prices and volatility in the period 2006-2017

  • This study investigates the role of speculative activity in the agricultural commodity futures market in the period 2006-2017

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Summary

Introduction

Prices of agricultural commodities have undergone abrupt variations, which have threatened food security of countries, which are more dependent on food imports and characterized by poverty. FAO (2009) states that there was a real "surge" in both spot and future prices in that period, and it generated an increase of about 100 million undernourished individuals worldwide. These fluctuations continued in the following years: in 2009 there was a collapse in prices, but prices rose again in 2011. From 2011 to 2014, agricultural commodity prices were stable, but later they declined again and in 2016 the FAO food price index reached the same level as 2007 (FAO, 2017)

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