Speculative bubbles in agricultural commodities markets

Numerous factors have been proposed in the literature as explaining the recent commodity price movements. In this paper we focus on the impact of speculative bubbles on commodity prices. We investigate whether commodity prices might have deviated from their intrinsic values, which are based on market fundamentals, during the recent price spike of 2007-2008. We use a bootstrap methodology to compute the finite sample probability distribution of the tests recently proposed in Phillips, Wu and Yu (2011) and Phillips and Yu (2009b). Monte-Carlo simulations show that the bootstrap methodology works well, and allows us to identify explosive processes and collapsing bubbles for three of the four analyzed agricultural commodity futures markets, i.e. wheat, corn and rough rice. There was less evidence of price exuberance in soybeans prices.