"Bubbles, Food Prices, and Speculation: Evidence from the CFTC’s Daily Large Trader Data Files," with Scott Irwin, University of Illinois at Urbana-Champaign. Monday, November 6, 3:40 PM-5:30 PM, 368A Heady Hall.

Scott Irwin's research on agricultural marketing and price analysis, commodity market efficiency, and speculation in commodity markets is widely-cited by other academic researchers and in high demand among market participants, policy-makers, and the media. He has produced over 200 scholarly publications in his career, with numerous articles in the leading academic journals of his field. Irwin’s research and outreach programs have had a significant and positive impact on the agricultural community. Irwin is co-director of AgMAS, a nationally-recognized project that provides performance evaluations of agricultural market advisory services. He serves as the team leader of farmdoc, an award-winning Extension program that provides comprehensive risk management information and analysis for farmers and agribusinesses in the United States. Recently, Irwin led the effort to create farmgate, a sister-site designed to integrate, synthesize, and summarize the information available to Midwest farmers and agribusinesses across the spectrum of agricultural disciplines. Irwin has made important contributions to the international debate on the role of speculators in commodity futures markets.

He earned a bachelor’s degree in agricultural business at Iowa State University, and both an M.S. and a Ph.D. in agricultural economics at Purdue University. Irwin joined the faculty of the Department of Agricultural Economics and Rural Sociology at The Ohio State University in 1985. He was named the Francis B. McCormick Professor of Agricultural Marketing and Policy at Ohio State in 1996. In 1997, he joined the faculty of the Department of Agricultural and Consumer Economics at the University of Illinois; he was named the Laurence J. Norton Chair of Agricultural Marketing in 2004.

Abstract: The “Masters Hypothesis” is the claim that unprecedented buying pressure from new financial index investors created a massive bubble in agricultural futures prices at various times in recent years. The purpose of this paper is to analyze the market impact of financial index investment in agricultural futures markets using non-public data from the Large Trader Reporting System (LTRS) maintained by the U.S. Commodity Futures Trading Commission (CFTC). The LTRS data are superior to publicly-available data because commodity index trader (CIT) positions are available on a daily basis, positions are disaggregated by contract maturity, and positions before 2006 can be reliably estimated. Bivariate Granger causality tests use CIT positions in terms of both the change in aggregate new net flows into index investments and the rolling of existing index positions from one contract to another. The null hypothesis of no impact of aggregate CIT positions on daily returns is rejected in only 3 of the 12 markets. Point estimates of the cumulative impact of a one standard deviation increase in CIT positions on daily returns are negative and very small, averaging only about two basis points. The null hypothesis that CIT positions do not impact daily returns in a data-defined roll period is rejected in 5 of the 12 markets and estimated cumulative impacts are negative in all 12 markets; the opposite of the expected outcome if CIT rolling activity simultaneously pressures nearby prices downward and first deferred prices upward. Overall, the results add to the growing body of literature showing that buying pressure from financial index investment in recent years did not cause massive bubbles in agricultural futures prices.