Commodity Markets Create Own Volatility: Study Finds Internal Dynamics Drive Price Swings

New research from the University of Nebraska-Lincoln suggests that commodity markets may be creating up to 80% of their own volatility, rather than being driven by external events such as droughts or wars.

Fabio Mattos, an associate professor in UNL's Department of Agricultural Economics, and his colleagues analyzed decades of daily futures prices for commodities including corn, soybeans, wheat, coffee, sugar, orange juice, hogs, and cattle using nonlinear analytical methods.

The research found that internal market dynamics may account for a significant portion of price volatility, with Mattos comparing it to a traffic jam caused by individual drivers reacting to each other. He emphasized that external events are still important, but buyers and sellers can also influence one another in ways that create significant price movement.

The study's findings could potentially improve short-term price forecasting and risk management, although Mattos cautioned that commodity prices remain unpredictable.