The impact of financial speculation on futures contracts price movements: A study of the US markets for dairy commodities

• Authors: Algirdas Justinas Staugaitis , Česlovas Christauskas

Abstracts

EN

Research background: The study analyzes whether financial speculation destabilizes commodity prices in light of recent price volatility and spikes in agricultural commodities. The study delves deeper into the US dairy futures markets, which are less studied by other authors in their research and relatively new in comparison to other agricultural commodity markets. These dairy commodity futures contracts provide dairy businesses and farmers the chance to hedge against price risks, which are particularly crucial in uncertain economic times such as the post-2020 COVID-19 pandemic timeframe. The analysis makes use of the weekly returns on futures contracts for nonfat milk powder, butter, milk class III, and cheese that are obtained from the Chicago Mercantile Exchange (CME). Purpose of the article: Conduct an empirical study to evaluate the effect of financial speculation on dairy product prices on US commodity markets, including the post-2020 timeframe. Methods: Time series analysis is used in the investigation: the generalized auto-regressive conditional heteroskedasticity (GARCH) method, the Granger causality test, and the Augmented Dickey-Fuller (ADF) test. Findings & value added: Our analysis's findings show that, even though most commodities experienced an increase in return volatility during the post-2020 period, there is no evidence for financial speculation being the cause of increased returns from dairy futures contracts. The research also suggests that financial speculation, in some cases, even lowers the volatility of dairy futures prices. Therefore, non-commercial market participants may help to distribute price risks, making these markets more liquid.

Keywords

EN

commodity futures contracts; dairy commodity futures; financial speculation; return volatility; GARCH

• Publisher: Instytut Badań Gospodarczych
• Journal: Equilibrium. Quarterly Journal of Economics and Economic Policy
• Year: 2023
• Volume: 18
• Issue: 3
• Pages: 661-686

Dates

published

2023

Contributors

author

Algirdas Justinas Staugaitis

• Kaunas University of Applied Sciences

• https://orcid.org/0000000157490299

author

Česlovas Christauskas

• Kaunas University of Applied Sciences

• https://orcid.org/000000029668785X

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Identifiers

DOI

10.24136/eq.2023.021

Biblioteka Nauki

22396254