Even if prices for agricultural commodities do not reach the peaks seen in 2008, there is a revival in the interest for speculation on agricultural futures markets. Lionel Porte1, Product Manager at Euronext2, observed that over 3 million batches were indeed traded on Euronext from January to end October 2009 or, “14% more than the entire volume traded in 2008.” On the futures market for wheat, 7000 units are traded in a single day, a figure up by 34% compared to last year, for rapeseed, activity increased by 18% to more than 3000 units per day. But it is in options3 that the surge is most noticeable: for example, wheat transactions increased by 180% in one year on Euronext.
This activity is particularly worrying because, the options market, by nature, is more speculative than the more conventional futures market.
If futures markets provide liquidity and enable producers to hedge against price volatility for certain commodities on agricultural markets, they remain a double-edged sword because they can also encourage speculative excess and the formation of "bubbles". This was observed on the Chicago Stock Exchange in 2007/2008, where more than 90% of transactions in futures markets did not involve any actual trading of physical commodities.
The recent surge in agricultural prices has highlighted the active role of short-term investors as a catalyst for volatility. It is therefore essential to have a credible means of assessing the impact of speculation on market equilibrium4, and effective regulatory measures to guard against the formation of an agricultural bubble, the effect of which will be no less devastating than the financial crisis.
1 During a meeting on commodities organised by Aftaa (French association of animal feed technicians), 2 and 3 December in Paris.
2 The European futures market for agricultural commodities.
3 Type of contract exchanged on futures markets.
4 Please see : momagri, “First scientific publication of the momagri model”, 07/12/2009
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