The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?

38 Pages Posted: 20 Jun 2008

See all articles by Dwight R. Sanders

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics

Scott H. Irwin

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Robert P. Merrin

Universidad de Cantabria

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2008

Abstract

The objective of this report is to re-visit the "adequacy speculation" debate in agricultural futures markets. The Commodity Futures Trading Commission makes available the positions held by index funds and other large traders in their Commitment of Traders reports. The results suggest that after an initial surge from early 2004 through mid-2005, index fund positions have stabilized as a percent of total open interest. Traditional speculative measures do not show any material changes or shifts over the sample period. In most markets, the increase in long speculative positions was equaled or surpassed by an increase in short hedging. So, even after adjusting speculative indices for index fund positions, values are within the historical ranges reported in prior research. One implication is that long-only index funds may be beneficial in markets traditionally dominated by short hedging. Attempts to curb speculation through regulatory means should be weighed carefully against the potential benefits provided by this class of speculators.

Keywords: Commitments of Traders, index funds, commodity futures markets

JEL Classification: Q10, Q11

Suggested Citation

Sanders, Dwight R. and Irwin, Scott H. and Merrin, Robert Patrick, The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing? (June 1, 2008). Available at SSRN: https://ssrn.com/abstract=1147789 or http://dx.doi.org/10.2139/ssrn.1147789

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

Scott H. Irwin (Contact Author)

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
326 Mumford Hall, MC-710
Urbana, IL 61801
United States

Robert Patrick Merrin

Universidad de Cantabria ( email )

Santander 39005
Spain

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