Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement
Economic Research Report No. (ERR-165) 51 pp, April 2014
by Joseph Janzen, Colin A. Carter, Aaron Smith, and Michael K. Adjemian
In 2008, wheat futures prices spiked and then crashed along with prices for other agricultural and non-agricultural commodities. This study uses an econometric model to explain the influence of various factors, including passive speculation by large traders, on wheat prices. Findings show that market-specific shocks related to supply and demand for wheat were the dominant cause of price spikes.
Keywords: Commodity prices, comovement, futures, index funds, speculation, wheat
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