Speculation on Commodities Futures Markets and Destabilization Of Global Food Prices: Exploring the Connections
In December 2010, the FAO food price index surpassed its previous peak of June 2008, and prices have been maintained at this high level through September 2011 (i.e. as of this writing). This pattern in food prices is creating justified fears of a renewal or intensification of the global food crisis. This paper reviews arguments and evidence to inform current debates on how to regulate commodity futures markets in the face of such price volatility and sustained high prices, focusing on 1) the relationship between market liquidity and price patterns in asset markets in general and commodities futures markets in particular, and 2) the relationship between spot and futures market prices for food. We find that there is strong and consistent evidence in support of the need to limit the huge increases in trading volume on futures markets through effective regulations. We also find that the opposite position—i.e. the main analytic arguments opposing market regulation—cannot be supported by the evidence. That is, we find no support for the claim that liquidity in futures markets serves to stabilize prices at their “fundamental” values or that spot market prices are formed free of any significant influence from futures markets. Given these results, the most appropriate position for regulators to assume at present is a precautionary principle: they should enact and enforce policies capable of effectively dampening excessive speculative trading on the commodities markets for food.
|Date of creation:||2011|
|Contact details of provider:|| Postal: 418 N Pleasant St, Amherst MA 01002|
Phone: (413) 545-6355
Fax: (413) 545-2921
Web page: http://www.umass.edu/peri/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
- Hernandez, Manuel & Torero, Maximo, 2010. "Examining the dynamic relationship between spot and future prices of agricultural commodities," IFPRI discussion papers 988, International Food Policy Research Institute (IFPRI).
When requesting a correction, please mention this item's handle: RePEc:uma:periwp:wp269. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Judy Fogg)
If references are entirely missing, you can add them using this form.