This paper studies the impact of ﬁnancial investments on agricultural futures prices, using structural vector autoregressions. We identify exogenous variation in net long positions of speculators through heteroskedasticity. We ﬁrst show that demand shocks of both index investors and noncommercial traders lead to a statistically signiﬁcant contemporaneous increase in futures prices. We then quantify the economic importance of these shocks. Our ﬁndings suggest a negligible contribution of index investors’ demand shocks and only a small contribution of noncommercials’ demand shocks to futures price dynamics, both on average and during the boom-busts in 2007/08 and 2011/12.
Keywords: Agricultural commodities, ﬁnancialization, futures market structure, speculators, structural vector autoregressions