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AbstractRegulators are proposing new position limits in U.S. commodity futures markets while the actual impact of long‐only index funds on futures prices continues to be debated. Researchers have noted the data limitations—frequency and market breadth—associated with using data compiled by the U.S. Commodity Futures Trading Commission (CFTC). This research addresses these shortfalls by using daily position data for a specific long‐only index fund. The empirical analysis focuses on the firm‐level position data across 13 U.S. agricultural futures markets. The firm‐level data are shown to be representative of the overall index fund industry. Empirical tests fail to find any evidence linking the firm's trading with market returns. However, there does appear to be a consistent negative relationship between the firm's roll transactions and changes in calendar price spreads. Notably, the direction of this impact runs contrary to the price‐pressure hypothesis. The results of this study, and others, indicate that a clear verdict can be reached—new limits on speculation in agricultural futures markets are unnecessary.

AbstractInvestments into commodity‐linked products have grown considerably in recent years. Unlike investments in equities, commodity futures markets produce no earnings; the source of returns is thus unclear. This paper examines returns to static long‐only U.S. commodity futures investments over five decades and finds that returns to individual futures markets are zero, and the returns to futures market portfolios depend critically on portfolio weighting schemes. Historical portfolio returns are not statistically different from zero and are driven by price episodes such as that of 1972‐1974. In other periods, portfolio returns are zero or negative. Overall, the case for long‐only investment in commodities may not be as strong as that implied in some studies (e.g., Gorton and Rouwenhorst, 2006a). If so, the growth in long‐only commodity investments may naturally subside and ease the policy debate regarding speculative position limits.

AbstractSome market participants and policy‐makers believe that index fund investment was a major driver of the 2007‐2008 spike in commodity futures prices. One group of empirical studies does find evidence that commodity index investment had an impact on the level of futures prices. However, the data and methods used in these studies are subject to criticisms that limit the confidence one can place in their results. Moreover, another group of studies provides no systematic evidence of a relationship between positions of index funds and the level of commodity futures prices. The lack of a direct empirical link between index fund trading and commodity futures prices casts considerable doubt on the belief that index funds fueled a price bubble.

AbstractRecent changes in farm policy have renewed interest in using marketing strategies based on futures and options markets to enhance the income of field crop producers. This article reviews the main concepts and associated empirical research of the dominant academic theory concerning the behavior of futures and options markets, namely, the efficient market hypothesis. This rich conceptual and empirical base provides several important insights. One is that, although individuals can beat the market, few can consistently do so. This insight is consistent with Grossman and Stiglitz's model of market efficiency, in which individuals who consistently earn trading returns have superior access to information or superior analytical ability. One implication is that, with few exceptions, the crop producers who survive will be those with the lowest cost of production because efforts to improve revenue through better marketing will have limited success. Some successful marketing strategies do appear to exist, but generally they are based on using the market as a source of information. One example is to base storage decisions on whether the current basis exceeds the cost of storage and then to use hedging to ensure an expected positive return.

AbstractWe investigate storage in the presence of backwardation and the existence of the Working curve for Chicago Board of Trade corn, soybeans, and wheat markets and the Kansas City Board of Trade wheat market using 1990–2010 data. Two spread measures—the futures‐spot and futures‐futures—are matched with deliverable stocks on the first Friday of delivery. To account for grade and location aggregation issues, the futures‐spot spreads are measured using the lowest spot bid and highest futures price. Storage in the presence of backwardation is pervasive both in terms of the percentage of observations and the magnitude of the stockholdings. The Working curve emerges most clearly in KCBT wheat and soybeans. Convenience yield is also supported by the negligible holdings of delivery shipping certificates in backwardations. Overall, the results show that the Working curve does indeed still work today. When evaluating policy proposals to deal with heightened price volatility in agricultural markets it is important that models incorporate this well‐established relationship.