Agriculture, Oil Futures Markets Are Not Driven by Speculators, OECD Says

Agriculture and oil futures markets are not driven by speculators and may help to dampen rapid price changes, according to a study done for the Organization for Economic Co-operation and Development.

“The most surprising result is the consistent tendency for increasing index fund positions to be associated with declining market volatility,” the Paris-based OECD said in the report. “This result is contrary to popular notions.”

The U.S. Commodity Futures Trading Commission is moving to impose limits on energy futures trading after oil prices rose to a record $147.27 a barrel in 2008. Rising food costs the same year threatened unrest in countries from Mexico to Indonesia and led governments in China and Russia to raise export taxes on foodstuffs, while India banned futures trading in commodities.

Index fund investment in commodities increased from $90 billion at the beginning of 2006 to about $200 billion at the end of 2007, according to the study, by Scott Irwin of the University of Illinois and Dwight Sanders of the University of Southern Illinois.

The “wave” of investment in the last five years “certainly represents a significant structural change in participation in these markets,” according to the report. The markets have shown a “remarkable ability” to take in the investment “with apparently minimal price impact.”

To contact the reporter on this story: Claudia Carpenter in London at

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