Speculative activity of investment funds in the future market of agricultural commodities, 2006–2009

Abstract

The international market for agricultural commodities is an example of a market characterized by an ample speculative process. Much of this process is conducted by Investment Funds, whose participation in futures markets, under the portfolio of Commodity Index Funds, seeks to profit in the short term and will drastically change the formation of the commodities future prices. Using the information available from the Commodities Futures Trading Commission (CFTC), the Commodity Index Traders (CIT) and the data on futures market prices from the Chicago Board of Trade (CBOT) and the Intercontinental Exchange (ICE) in New York, the study has the objective of identifying the behavior and level of influence of the Investment Funds in the formation of the international prices of cotton, sugar, coffee and soybeans during the period 2006 to 2009. The results indicated that the speculators have exercised a significant influence in the formation of the agricultural commodities future prices. For cotton, the level of speculation reached, on February 24, 2009, 64.56%. For coffee, the level of speculation was, on July 17, 2008, 60.60%. For soybeans, the speculators had, on July 3, 2008, 54.87% of the market. For sugar, the highest percentage was reached on July 29, 2008, with 53,72%.