Speculation and the price of corn

Nicolas Allan Philippe Heisterberg

Student thesis: Master thesis

Abstract

The aim of this paper is to investigate the role of speculation on the unusual price fluctuations in corn from 2005 to 2012. Empirical and statistical analyses are conducted to respectively determine and quantify the implications of speculation on the food commodity. One of the main findings of this study is the need for further research on the theory of speculation. The contradicting theories on speculation led this study to emphasise on the need to differentiate between speculation as a price discovery process and excessive speculation as an investment strategy which purpose is to deliberately initiate price fluctuations. The empirical analysis in this paper shows that excessive speculation was not the sole cause of the price fluctuations in corn. Other variables such as the price of crude oil, the US Dollar, fertiliser prices and the demand for bio ethanol are estimated to have had an influence. A subsequent statistical analysis is run to quantify the implications of each variable on the price of corn. The findings show that the price of crude oil and the US Dollar are the two variables with the highest explanatory value. Fertiliser prices and the demand for bio ethanol also had their share of influence on the price of corn though considerably lower than the price of crude oil and the US Dollar. The statistical analysis also confirms the findings in the empirical analysis, that excessive speculation is not the cause for the price fluctuations in corn. The variables in the statistical analysis fall short in explaining all of the price movements in corn. This paper therefore ends by analysing alternative and intangible variables that affected the price of corn. The findings show that variables such as weather, policies, inventory and general macroeconomic factors also have a substantial influence on the price of corn.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages88