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Article
Publication date: 30 September 2014

Christina Kleinau and Nick Lin-Hi

This paper aims to conceptually analyse the role of speculation in society to determine whether agricultural commodity index funds, a new form of speculation, contribute…

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1233

Abstract

Purpose

This paper aims to conceptually analyse the role of speculation in society to determine whether agricultural commodity index funds, a new form of speculation, contribute to sustainable development.

Design/methodology/approach

The theoretical arguments justifying the value of the market economic system for generating sustainable development and the positive contribution speculators make too in this context are elaborated. It is then considered whether the arguments justifying traditional speculation hold for agricultural commodity index funds.

Findings

Traditional forms of speculation contribute positively to sustainable development; primarily due to the information they uncover on demand and supply factors which affect prices. Agricultural index funds are a danger to sustainable development, as their transactions are not based on demand and supply factors but simply represent demand for the diversification effect which commodities generate when added to an investment portfolio.

Originality/value

The article offers a new approach to assessing whether agricultural index funds contribute to sustainable development. Empirical research has been conducted on whether speculation via index funds has unjustifiably affected commodity prices. However, results of these investigations have been inconclusive due to stark limitations in data availability. By approaching the issue from a conceptual point of view, the article delivers theoretically sound arguments as to why agricultural commodity index funds are likely to have an unjustifiable effect on prices and, hence, are a danger to sustainable development. This has strong implications for finance practice and regulation.

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Corporate Governance, vol. 14 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 22 September 2020

Qianqian Mao, Yanjun Ren and Jens-Peter Loy

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China…

Abstract

Purpose

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China agricultural commodity markets.

Design/methodology/approach

Using recently developed rolling window right-side augmented Dickey–Fuller test, we first detect the dates of price bubbles in China's two important agricultural commodity markets, namely corn and soybeans. Then, we use a penalized maximum likelihood estimation of a multinomial logistic model to estimate the contributing factors of price bubbles in both markets, respectively.

Findings

Results from the bubble detection indicate that price bubbles account for 5.48% (3.91%) of the studied periods for corn (soybeans). More importantly, we find that market liquidity and speculation have opposite effects on the occurrences of bubbles in the corn and soybeans market. World stocks-to-use and exchange rates affect the occurrences of bubbles in a different way for each commodity, as well. Price bubbles are more likely associated with strong economic activity, high interest rates and low inflation levels.

Originality/value

This is the first study considering commodity-specific features into the formation of price bubbles. Through accurately identifying the bubble dates and fixing the estimation bias of rare events models, this study enables us to obtain robust results for each commodity. The results imply that China's corn and soybeans market respond differently to the speculative activity and external shocks from international markets. Therefore, future policy regulations on commodity markets should focus on more commodity-specific factors when aiming at avoiding bubble occurrences.

Details

China Agricultural Economic Review, vol. 13 no. 1
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 31 August 2012

J. Alexander Nuetah, Yitian Xiao and Pei Guo

The purpose of this paper is to provide readers with the main findings and conclusions of papers presented at the 2011 CAER‐IFPRI International Conference held under the…

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306

Abstract

Purpose

The purpose of this paper is to provide readers with the main findings and conclusions of papers presented at the 2011 CAER‐IFPRI International Conference held under the theme “Is China entering a high food price era?”

Design/methodology/approach

The authors conduct a desk review of papers presented at the conference and provide a brief summary of the analytical tools, and main findings and conclusions of each presentation.

Findings

These reviews show that, while there seems to be an increase in the prices of agricultural commodities on the Chinese market, in real terms, these rises fall far below the increases in the prices of industrial commodities. Thus, expert views remain divided on whether China is entering an era of high food price.

Originality/value

The discussions initiated by the conference theme aroused researchers' curiosities for further studies into understanding the current level of food prices in China.

Details

China Agricultural Economic Review, vol. 4 no. 3
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 5 May 2020

Lateef Olawale Akanni

Empirical studies have documented the linkage between exchange rate movement and food prices. However, the purpose of this study is to investigate the degree and direction…

Abstract

Purpose

Empirical studies have documented the linkage between exchange rate movement and food prices. However, the purpose of this study is to investigate the degree and direction of returns and volatility spillover transmission between exchange rate and domestic food prices in Nigeria.

Design/methodology/approach

The study uses weekly data from January 2010 to January 2019. Also, the study adopts the improved Diebold and Yilmaz (2012) approach to evaluate the return and volatility spillover between food price and naira to dollar exchange rate. The study also account for 2016 exchange rate crash in the interconnectedness between food prices and naira to dollar exchange rate.

Findings

The paper finds evidence of directional interdependence among the considered food prices and exchange rate based on the obtained spillover indexes. In addition, exchange rate returns and volatility transmission to food prices is more than it receives, particularly after the exchange rate crash.

Research limitations/implications

The high consumption of staple foods requires policies on price stabilisation such as massive investment in local production and reduction in import dependence, in order to cushion the effects of exchange rate depreciation on domestic prices of food.

Originality/value

This study is the first empirical study to investigate the interconnectedness between exchange rate and domestic food prices for a food import–dependent developing country using the Diebold and Yilmaz approach.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 10 no. 3
Type: Research Article
ISSN: 2044-0839

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Book part
Publication date: 16 December 2015

Ekaterina Krivonos, Jamie Morrison and Eleonora Canigiani

We examine the links between trade and food security, the processes that shape countries’ trade-related interventions in pursuit of food security objectives, and the…

Abstract

Purpose

We examine the links between trade and food security, the processes that shape countries’ trade-related interventions in pursuit of food security objectives, and the prospects for better situating trade and food security in debates related to the use of trade policy.

Methodology/approach

Building on the previous and ongoing work of Food and Agriculture Organization of the United Nations and others, this chapter revisits the interaction between trade and food security, with the objective of contributing to a more informed discussion of policy choices and improved incorporation of food security concerns into trade-related decision-making processes.

Findings

The linkages between trade and food security have been subject to intense debate both at the national and international level. Furthermore, these linkages have become central to many trade-related discussions, including the ongoing multilateral trade negotiations at the World Trade Organization. However, the specific context of the relationship between trade and food security, and of the role of trade in securing improvements in food security, have made it difficult to craft a global framework that ensures that the pursuit of national objectives is compatible with reducing food insecurity at the global level.

Practical implications

As the global governance system undergoes a transition, the roles and responsibilities for food security are being redefined within a more complex and interconnected global landscape whose contours are still to be fleshed out. This calls for a reflection on the multilateral trading system and on the need to strengthen the synergies with nontrade processes to enhance the role of trade in contributing to food security.

Details

Food Security in an Uncertain World
Type: Book
ISBN: 978-1-78560-213-9

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Article
Publication date: 3 May 2013

Xiaoliang Liu, Guenther Filler and Martin Odening

The authors' paper aims to deal with the question whether speculative bubbles are present in agricultural commodity prices.

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3202

Abstract

Purpose

The authors' paper aims to deal with the question whether speculative bubbles are present in agricultural commodity prices.

Design/methodology/approach

The authors apply a regime switching regression model to test the hypothesis that agricultural prices contain periodically collapsing bubbles. Using daily futures prices for six agricultural commodities, the authors calculate net convenience yields from which price fundamentals are derived.

Findings

The authors discover pronounced deviations between observed prices and their fundamental values. However, they do not find evidence for the presence of periodically and partially collapsing speculative bubbles for five of six commodities. Except for soybeans, the signs and the significance of the estimated coefficients are not entirely in line with the predictions of the theoretical model.

Originality/value

The authors' study adds to the heated discussion on the impact of speculative behavior on agricultural commodity prices. So far, most contributions in the literature either use theoretical arguments for the (non‐) existence of bubbles or apply indirect tests which are plagued by low statistical reliability. In contrast, the authors apply a direct test. They find that the outcome of empirical bubble tests depends on the considered bubble type and on the testing procedure. In view of these ambiguities, definite statements on the presence of speculative bubbles as well as demands for limitations of speculative positions in commodity futures markets should be carefully reconsidered.

Details

Agricultural Finance Review, vol. 73 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 27 September 2021

Manogna RL and Aswini Kumar Mishra

The phenomenon known as financialization of commodities, arising from the speculation in commodity derivatives market, has raised serious concerns in the recent past. This…

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72

Abstract

Purpose

The phenomenon known as financialization of commodities, arising from the speculation in commodity derivatives market, has raised serious concerns in the recent past. This has prompted distortion in agricultural commodity prices driving them away from rational levels of supply and demand shocks. In the backdrop of financialized commodities leading to increase in price of agricultural products and their interaction with equity markets, the authors examine the investment of institutional investors in impacting the agricultural returns. The paper aims to focus on the financial mechanism that drives extreme values and the mean of agricultural returns.

Design/methodology/approach

The authors employ the Threshold AutoRegressive Quantile (TQAR) methodology to find evidence of linkages between the Indian agricultural and equity markets from January 2010 to May 2020 consistent with the rise in inflows of institutional investors in agricultural markets.

Findings

The results reveal that the investors impact the agricultural commodity markets strongly when the composite commodity index value (COMDEX) is low. Additionally, in the lower extreme quantiles (0.25) of agricultural returns, the integration between the equity index and agricultural returns is found to be highly significant compared to insignificant values in the higher quantiles (0.75 and 0.95) in both the regimes. The results suggest that low values of agricultural commodities are more closely linked to equity indices when composite commodity index value is low. This implies that, at the lower quantiles of COMDEX return (bad day), the investors move to the stock market. In that way, the commodity index returns are seen to be as a strong channel for the financialization of Indian agricultural commodities and suggesting potential involvement of investors during those regime.

Research limitations/implications

Regulators need to anticipate the price fluctuations in spot and futures markets. Investors in commodity markets need to strengthen risk awareness to carry out portfolio strategies.

Practical implications

From policy perspective, it is of pivotal importance to enhance the understanding of the financialization of agricultural products. The findings provide reference measures to stabilize the commodity markets, alleviate price distortions and carry out further evidence of price discovery and risk management in Indian commodity markets.

Originality/value

To the best of the authors’ knowledge, this study is the first to highlight the potential influence of financial markets on the financialization of agricultural commodities in an emerging economy like India.

Details

International Journal of Social Economics, vol. 49 no. 1
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 1 March 1990

Roger J. Sandilands

Allyn Young′s lectures, as recorded by the young Nicholas Kaldor,survey the historical roots of the subject from Aristotle through to themodern neo‐classical writers. The…

Abstract

Allyn Young′s lectures, as recorded by the young Nicholas Kaldor, survey the historical roots of the subject from Aristotle through to the modern neo‐classical writers. The focus throughout is on the conditions making for economic progress, with stress on the institutional developments that extend and are extended by the size of the market. Organisational changes that promote the division of labour and specialisation within and between firms and industries, and which promote competition and mobility, are seen as the vital factors in growth. In the absence of new markets, inventions as such play only a minor role. The economic system is an inter‐related whole, or a living “organon”. It is from this perspective that micro‐economic relations are analysed, and this helps expose certain fallacies of composition associated with the marginal productivity theory of production and distribution. Factors are paid not because they are productive but because they are scarce. Likewise he shows why Marshallian supply and demand schedules, based on the “one thing at a time” approach, cannot adequately describe the dynamic growth properties of the system. Supply and demand cannot be simply integrated to arrive at a picture of the whole economy. These notes are complemented by eleven articles in the Encyclopaedia Britannica which were published shortly after Young′s sudden death in 1929.

Details

Journal of Economic Studies, vol. 17 no. 3/4
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 6 May 2020

Moumita Basu and Ranjanendra Narayan Nag

This is a theoretical paper in the field of structuralist macroeconomics. The paper focuses on commodity price fluctuation which has emerged as one of the major…

Abstract

Purpose

This is a theoretical paper in the field of structuralist macroeconomics. The paper focuses on commodity price fluctuation which has emerged as one of the major macroeconomic factors with significant bearing on the relationship between the agricultural and nonagricultural sectors.

Design/methodology/approach

The paper develops a dual economy model consisting of an agricultural sector and an industrial sector. The commodity price is subject to the fluctuations due to the fact that stock of primary goods is an asset which is sensitive to speculations. The paper considers a standard methodology of dynamic adjustment process involving change in stock of agricultural goods and price of agricultural goods under perfect foresight. The saddle path properties of the equilibrium are also examined.

Findings

The paper shows that the balanced budget fiscal expansion, capital account liberalization and the agricultural expansion lead to expansion of the industrial sector as well as level of employment. The increase in world interest rate may lead to contraction of the industrial sector and depress employment.

Originality/value

We will consider the openness of the economy in explaining how different macroeconomic policies and capital account liberalization generate multiple cross effects on the inter-connectedness between agricultural and the non-agricultural sector. The paper will discuss the issue of employment generation in conjunction with commodity price fluctuation. We depart from the literature by using Taylor rule under which interest rate is fixed by the Central Bank such that money supply becomes endogenous.

Details

Journal of Economic Studies, vol. 47 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 15 August 2019

Marius Michels, Johannes Möllmann and Oliver Musshoff

Adoption rates of commodity futures contracts among farmers are rather low in Europe despite their political support. The purpose of this paper is to examine whether the…

Abstract

Purpose

Adoption rates of commodity futures contracts among farmers are rather low in Europe despite their political support. The purpose of this paper is to examine whether the Technology Acceptance Model (TAM) can contribute to the understanding of farmers’ intention to use commodity futures contracts. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation.

Design/methodology/approach

The study is based on an online survey with 134 German farmers using partial least squares structural equation modeling to estimate the TAM.

Findings

The intention to use commodity futures contracts is mostly driven by farmers’ motivation for speculation rather than price risk reduction. Assuming risk averse farmers, this result could explain low adoption rates. Furthermore, perceived ease of use has a positive effect on the intention to use commodity futures contracts.

Practical implications

Handling of price hedging instruments should be facilitated to increase farmers’ adoption. Effective marketing trainings, which can demonstrate the ability of commodity futures contracts to reduce price risk, could increase farmers’ motivation to use them for their risk management instead of speculation.

Originality/value

This study analyzes path relationships between constructs expected to influence the intention to use commodity futures contracts which are allowed to be estimated by the TAM in one model. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation. This is the first study applying the TAM to price risk management tools.

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