Do financial investors affect the price of wheat?

It is widely debated whether financial speculation was a significant force behind recent food price fluctuations. As a matter of fact, during the 2000s agricultural commodity derivatives markets were flooded by a ‘wall of money’ coming from financial investors. In agricultural exchanges, the greatest part of this huge financial inflow came from index traders, i.e. financial actors that follow a passive strategy of tracking a commodity index. In this article I present new empirical evidence that supports the hypothesis that financial investments have affected wheat price dynamics in recent years. In particular, I focus on Hard Red Winter (HRW) wheat. Since 2007 HRW wheat price fluctuations have been positively related to US stock market returns and oil price movements. These correlations appear to be determined by commodity index traders, since both these relationships proved to be spurious, with the most tracked commodity index as the confounding variable.