Numerous factors have contributed to the recent commodity boom and have been analysed extensively in the literature. Yet their relative weight continues to be an area of contention. In this paper we examined three key factors whose role has been somewhat controversial: speculation, the growth of demand for food commodities by emerging economies and the role of biofuels. We conjecture that index fund activity (one type of speculative activity among the many that the literature refers to) played a key role during the 2008 price spike. Biofuels played some role too, but much less than initially thought. And we find no evidence that alleged stronger demand by emerging economies had any effect on world prices. These conclusions provide insights into the determinants of the future path of commodity prices. Central among the uncertainties is the relationship between the prices of energy and of food commodities.
* John Baffes and Tassos Haniotis, Placing the 2006/08 Commodity Price Boom into Perspective, Policy Research Working Paper 5,371, The World Bank, July 2010