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Index speculation - a new challenge for world food security

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Bass, Hans-Heinrich

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Corporate Editor University of Gdansk
Abstract In recent years, new actors from the outside the agrobusiness – the “index-oriented investors” – have entered the grain futures markets. This activity cannot be understood without considering the fact that prices for agricultural commodities have increased since the mid-1990s due to fundamental factors, both on the demand- and the supply-side. Based on this, agricultural commodities futures have become an attractive asset class for financial investors with two characteristics: first, they look for new asset classes the performance of which is not correlated with other asset classes; secondly, they believe that passive portfolio-management strategies, i.e. the “replication” of the market by distributing investments across various assets such as those being represented in popular indices, are more successful than active selection strategies. Investment in commodity futures by index-oriented investors had been facilitated by the development of new financial instruments (ETC, ETF). It has become ever more appealing as a result of falling returns on investment for traditional financial investments, such as the government bonds. However, the unconditional demand exerted by index-oriented investors on futures markets does not only lead to the reinforcement of the upward price trend on the spot market but also contributes to the emergence of short-term price bubbles (2008 and 2010/11).
Keywords financial market; speculation; food; formation of prices; index; investment; agricultural production; world market; nutrition situation
Classification Political Economy
Free Keywords index investment; futures; spot market
Collection Title Challenges of the global economy
Editor Mrzygłód, Urszula
Document language English
Publication Year 2012
City Gdansk
Page/Pages p. 719-728
Series Working Papers Institute of International Business University of Gdansk, 31
ISSN 1230-6444
Status Published Version; peer reviewed
Licence Creative Commons - Attribution-Noncommercial-No Derivative Works