Speculation and corn prices

It is commonly asserted that speculative trading activities are largely behind the high and volatile food commodity price behaviour since 2006. In this article, we revisit this hypothesis by investigating how different speculative measures affect our conclusion on the role of speculation. Four speculative measures are considered, including index trading activities, non-commercial net long positions, Working’s speculative index, and an excessive speculative volume index. These four measures imply different underlying hypotheses about the role of speculation on commodity price movements and encompass most of the measures used in the recent literature on the role of speculation in commodity markets. Using a structural vector autoregressive (SVAR) model, we show a mixed impact of speculative trading on corn prices depending on the measure used. While shocks to index trading activities and excess speculation as measured by Working’s T have either zero or negative impact on corn prices, a positive shock to non-commercial net positions or the Tadesse index significantly increases the price of corn. However, the magnitude of the impact is not large, at most about $0.30 per bushel in real terms. Our findings are robust to structural breaks, alternative ordering of variables, and an alternative specification of the model.