Authors: Elissa A.M. Iorgulescu (University of Hohenheim) and Alexander Pütz (University of Münster)
In recent years, rising food prices and volatile commodity markets have reignited debates about speculation in food commodities. Headlines blaming speculators for betting on food prices are not new; they echo concerns voiced over centuries, dating back to the earliest days of derivative trading. During the interwar period in the United States – when futures markets were rapidly expanding – similar concerns about “grain gamblers” led to regulatory interventions that still shape modern trading in futures markets today. But were these concerns justified?
In our recent article, we revisit this historical debate by digitising and analysing a novel dataset of daily trades from the Chicago Board of Trade (CBoT), the world’s leading grain futures market in the 1920s and 1930s. Our findings offer a historical perspective on the role of speculators and challenge long-held assumptions that underpinned key regulatory changes.
The Interwar Backdrop: Speculation and Regulation
The interwar period was a turbulent time for US grain markets, and farmers held speculators responsible for exacerbating market instability. In response to such charges, Congress introduced major regulatory measures such as the Grain Futures Act of 1922 and Commodity Exchange Act of 1936. These laws aimed to curb “excessive speculation” by placing limits on the size of speculative trades.
The justification for these interventions was simple: speculation was seen as a source of price instability that needed to be controlled. However, the evidence supporting these claims was limited. Contemporary analyses were based on a simple observation: when more speculators were active, grain prices fluctuated more. But did speculators cause these price fluctuations, or were they attracted to more volatile markets? This is where our study comes in.
Speculation and Volatility: What the Data Show
We digitised daily trading records for wheat and corn futures traded at the CBoT from 1921 to 1939. This includes detailed information on traders’ buying and selling positions – whether they were hedgers, speculators, or nonreporting traders – and enables us to analyse speculative activity with a level of precision not previously possible.
Using modern econometric tools, we found that while there was indeed a correlation between speculation and volatility, the direction of causation was not what policymakers assumed. Speculators did not cause grain price volatility. Instead, volatility often attracted speculators. That is, when futures markets became more volatile, speculators increased their trading activity, likely in response to heightened trading opportunities or perceived risk premiums.
Furthermore, we observed changes in speculative strategies over time. In the 1920s, speculators primarily followed momentum strategies – buying when prices rose and selling when they fell. By the 1930s, however, speculators had shifted to contrarian strategies, trading against prevailing price trends. This shift suggests that speculators adapted their behaviour to market conditions.
Lessons for Today
This new evidence challenges the idea that speculators are inherently a destabilising force for futures markets. In the interwar period, they provided an essential role by absorbing the risks that hedgers – primarily farmers – sought to transfer. In return, speculators earned a risk premium, illustrating how futures markets facilitate risk transfer.
This finding has important implications for contemporary debates. During the 2007–08 food price crisis, many argued that speculative trading was amplifying price movements, echoing the interwar criticisms of “grain gamblers”. Yet our results suggest that speculation can be a response to volatility rather than a cause, and that speculative trading activity may even enhance market liquidity and efficiency.
From a policy perspective, the key takeaway is that regulation should be grounded in clear causal evidence rather than anecdotal reasoning. While overseeing futures markets remains essential, imposing overly restrictive rules can disrupt their ability to facilitate risk transfer. Hedging mechanisms can only function effectively when there are sufficiently motivated buyers and sellers on both sides of the contract. For policymakers, then and now, the challenge is to strike a balance – allowing speculative trading activity to fulfill hedging demands while preventing it from destabilising prices.