Michael Hachula, Malte Rieth
We develop a structural VAR model to analyze the relationship between financial speculation, agricultural futures prices, and other asset prices. We consider two important types of speculators and test if they affect futures prices and through which channels. Moreover, we study their trading strategies. We find that shocks to net long positions of index investors do not affect futures prices, whereas shocks to money manager positions increase futures prices. Our results suggest that shocks are transmitted through the information discovery channel and reflect private signals. Further, we find that both investors are trend followers. They increase exposure in response to futures price shocks. This strategy amplifies initial shocks and increases futures price volatility. Overall, however, fundamental demand and supply are the main drivers of agricultural commodity price cycles.