Transferred to someone who is willing to gamble on what the price of a commodity will be in the future. That is what speculators do - they take on that risk because where there is risk, there may be reward.

So a certain amount of speculation is a good thing, says Michael Masters, head of the hedge fund Masters Capital Management. "You need enough liquidity from speculators to provide grease for the wheels, if you will."

Flood of new money

But something changed in the mid-2000s. Pension funds, sovereign wealth funds and other large institutional investors began looking to commodity market speculation as a way to diversify their portfolios.

Masters says investments in commodity index funds rose from $13 billion in 2003 to about $400 billion today. He says the flood of new money is helping to push prices up.

"Prices move when new money comes into a market. So if you have a house, and one buyer shows up, you may sell it at one price. On the other hand, if you have a house and five buyers show up, you're going to sell it at another price."

Masters adds that speculators used to make up about a third of the money in commodity markets. Now they dominate many of them. He says markets today are much more volatile because there is much more money reacting to good or bad news about crop supplies.

"If there's a certain amount of speculative capital, it's going to move a certain price. But if there's 20 times that amount of speculative capital, then it's going to move much more."