Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement

Adjemian, Michael K.; Janzen, Joseph P.; Carter, Colin A.; Smith, Aaron

doi:10.2139/ssrn.2502922

Cited by 20 publications

(16 citation statements)

References 39 publications

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“…Apart from direct effects of adverse weather events, several authors have ascribed a dominant role to export restrictions imposed by several important producer countries in response to yield shortfalls, further reducing world market supply and thus amplifying the price response to the yield shocks [5,7,8]. A similar argument has been made for the demand side, namely that importing countries, in response to an initial price rise, started to buy larger than usual quantities in an attempt to restock inventories and insure themselves against further price rises, thus collectively amplifying those very price rises [9][10][11].…”

Section: Introductionmentioning

confidence: 98%

The role of storage dynamics in annual wheat prices

Schewe

Otto

Frieler

2017

Environ. Res. Lett.

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Identifying the drivers of global crop price fluctuations is essential for estimating the risks of unexpected weather-induced production shortfalls and for designing optimal response measures.Here we show that with a consistent representation of storage dynamics, a simple supply-demand model can explain most of the observed variations in wheat prices over the last 40 yr solely based on time series of annual production and long term demand trends. Even the most recent price peaks in 2007/08 and 2010/11 can be explained by additionally accounting for documented changes in countries' trade policies and storage strategies, without the need for external drivers such as oil prices or speculation across different commodity or stock markets. This underlines the critical sensitivity of global prices to fluctuations in production. The consistent inclusion of storage into a dynamic supply-demand model closes an important gap when it comes to exploring potential responses to future crop yield variability under climate and land-use change.

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Section: Introductionmentioning

confidence: 98%

The role of storage dynamics in annual wheat prices

Schewe

Otto

Frieler

2017

Environ. Res. Lett.

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“…Kilian and Murphy (2013), Kilian and Lee (2013), and Fattouh et al (2013) show that this last explanation is not supported by oil market data, making it implausible that it would apply to other commodity markets, and allowing us to focus on the first three explanations. For more direct evidence on the role of financial speculation in the wheat market see Janzen, Carter, Smith and Adjemian (2013).…”

mentioning

confidence: 99%

Do oil price increases cause higher food prices?

2014

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“…The 2007/2008 ending stocks-to-use ratio for hard spring wheat was even lower, reaching about 11 percent. This conclusion finds additional support in the work of Janzen et al (2014), who estimate an SVAR model and find that MN spring wheat futures prices in February 2008 would have been 62 and 36 percent lower in the absence of net supply and precautionary demand shocks, respectively.…”

Section: Discussionmentioning

confidence: 57%

$25 spring wheat was a bubble, right?

Etienne

Irwin

Garcia

2015

Agricultural Finance Review

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Purpose -The purpose of this paper is to test for bubbles in the US hard red spring (HRS) wheat market from 2004 to 2014, with particular focus on 2007-2008 when the market experienced record-high price volatility. Design/methodology/approach -The authors apply a recently developed bubble testing procedure to cash, rolling nearby futures contract, and individual futures contract prices of HRS wheat sampled at daily, weekly, and monthly frequencies. Two critical value (CV) sequences are derived to date-stamp bubbles, one from Monte Carlo simulations, and the other from recursive wild bootstrap procedure. Findings -The authors find that regardless of the price series adopted, sampling frequency chosen, or CVs used, bubbles account for only a small fraction of the HRS wheat price behavior during 2004-2014. However, much sharper differences are detected regarding the key policy question of bubble behavior during 2007-2008. Individual futures contract prices during this period suggest only a minimal number of bubble days, while rolling nearby futures and cash prices indicate bubbles lasting much longer. Since theory suggests that prices for individual futures contracts are more likely to provide a clearer test of bubble components, the authors conclude there is little evidence that the spike in spring wheat prices to $25 per bushel in 2007-2008 was a bubble. Originality/value -This paper is the first in the literature to examine the sensitivity of bubble testing to different types of data, sampling frequencies, and inference procedures.

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Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement

Cited by 20 publications

References 39 publications

The role of storage dynamics in annual wheat prices

The role of storage dynamics in annual wheat prices

Do oil price increases cause higher food prices?

$25 spring wheat was a bubble, right?

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